ESC STRATEGIC FUNDS INC, 485APOS, 1999-05-27

ESC STRATEGIC FUNDS INC
485APOS, 1999-05-27

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<PAGE> 1
Registration Nos. 33-72190
811-8166

As filed with the Securities and Exchange Commission on May 27, 1999

================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X

POST-EFFECTIVE AMENDMENT NO. 12 X
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

AMENDMENT NO. 13 X

ESC STRATEGIC FUNDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

3435 STELZER ROAD, COLUMBUS, OHIO 43219

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 662-8417

W. HOWARD CAMMACK, JR.
SUNTRUST EQUITABLE SECURITIES CORPORATION
800 NASHVILLE CITY CENTER
511 UNION STREET
NASHVILLE, TENNESSEE 37219-1743
(NAME AND ADDRESS OF AGENT FOR SERVICE)

COPIES TO:

JEFFREY L. STEELE, ESQ. MARTIN R. DEAN
DECHERT PRICE & RHOADS BISYS FUND SERVICES
1775 EYE STREET, N.W. 3435 STELZER ROAD
WASHINGTON, D.C. 20006-2401 COLUMBUS, OHIO 43219-3035

Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.

It is proposed that this filing will become effective: (check appropriate box)

immediately upon filing pursuant to paragraph (b)
- ---
on (date) pursuant to paragraph (b)
- ---
X 60 days after filing pursuant to paragraph (a)(1)
- ---
on (date) pursuant to paragraph (a)(1)
- ---
75 days after filing pursuant to paragraph (a)(2)
- ---
on (date) pursuant to paragraph (a)(2) of rule 485.
- ---
<PAGE> 2

ESC STRATEGIC FUNDS, INC.

----------
PROSPECTUS
----------

JULY 29, 1999

ESC STRATEGIC APPRECIATION FUND

ESC STRATEGIC INTERNATIONAL EQUITY FUND

ESC STRATEGIC SMALL CAP FUND

ESC STRATEGIC SMALL CAP II FUND

ESC STRATEGIC INCOME FUND

- ----------------------------------------
Questions?
Call 1-800-261-FUND(3863)
or your investment representative.
- ----------------------------------------

THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED OR DISAPPROVED THE
SHARES DESCRIBED IN THIS PROSPECTUS OR
DETERMINED WHETHER THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<PAGE> 3

TABLE OF CONTENTS

CAREFULLY REVIEW THIS IMPORTANT SECTION, WHICH SUMMARIZES EACH FUND'S
INVESTMENTS, RISKS, PAST PERFORMANCE, AND FEES.

RISK/RETURN SUMMARY AND FUND EXPENSES

3 ABOUT THE ESC STRATEGIC FUNDS
5 ESC STRATEGIC APPRECIATION FUND
7 ESC STRATEGIC INTERNATIONAL EQUITY FUND
9 ESC STRATEGIC SMALL CAP FUND
11 ESC STRATEGIC SMALL CAP II FUND
13 ESC STRATEGIC INCOME FUND
15 FUND EXPENSES

REVIEW THIS SECTION FOR INFORMATION ON INVESTMENT STRATEGIES AND THEIR RISKS.

INVESTMENT OBJECTIVES, STRATEGIES AND RISKS

17 ESC STRATEGIC APPRECIATION FUND
17 ESC STRATEGIC INTERNATIONAL EQUITY FUND
18 ESC STRATEGIC SMALL CAP FUND
18 ESC STRATEGIC SMALL CAP II FUND
20 ESC STRATEGIC INCOME FUND
21 MANAGEMENT STRATEGIES

REVIEW THIS SECTION FOR DETAILS ON THE PEOPLE AND ORGANIZATIONS WHO OVERSEE THE
FUNDS.

FUND MANAGEMENT

25 THE INVESTMENT ADVISER
25 THE MANAGERS
26 THE ADMINISTRATOR AND DISTRIBUTOR
26 YEAR 2000

REVIEW THIS SECTION FOR DETAILS ON HOW SHARES ARE VALUED, HOW TO PURCHASE, SELL
AND EXCHANGE SHARES, RELATED CHARGES AND PAYMENTS OF DIVIDENDS AND
DISTRIBUTIONS.

SHAREHOLDER INFORMATION

28 PRICING OF FUND SHARES
29 PURCHASING AND ADDING TO YOUR SHARES
33 SELLING YOUR SHARES
35 GENERAL POLICIES ON SELLING SHARES
38 DISTRIBUTION ARRANGEMENTS/SALES CHARGES
41 DISTRIBUTION AND SERVICE (12B-1) FEES
42 EXCHANGING YOUR SHARES
43 DIVIDENDS, DISTRIBUTIONS AND TAXES

FINANCIAL HIGHLIGHTS

BACK COVER

WHERE TO LEARN MORE ABOUT THE FUNDS

2
<PAGE> 4

RISK/RETURN SUMMARY AND FUND EXPENSES
- -------------------------------------------------------------------------------

ABOUT THE ESC STRATEGIC FUNDS

The ESC Strategic Funds is a family of mutual funds, each of which invests in a
variety of securities such as stocks or bonds, in accordance with its investment
policies and strategies, which are described in this Prospectus.

SunTrust Equitable Securities Corporation is the Adviser of the Funds. Each of
the Funds also has one or more Managers who furnish investment advice and
recommendations regarding those Funds' investments.

The following Risk/Return Summary and Fund Expenses describe each Fund's
objectives, principal investment strategies, certain performance information and
the Funds' expenses. Detailed descriptions of the Funds are included following
the Risk/Return Summary on pages 17 - 21.

Be sure to read this Prospectus before you invest. If you would like additional
information, please request a copy of the Statement of Additional Information
(see back cover). For assistance regarding the Funds, we suggest you contact
your financial professional, or call 1-800-261-FUND (3863).

SUMMARY OF PRINCIPAL RISKS

This summary describes certain of the principal risks that apply to the Funds.
These risks can cause the value of your investment to decline. Except for
Non-Diversification Risk and Equity Risk, all the risks affect each Fund to some
degree. We note Funds for which a particular risk may be more prominent than for
other Funds.

o MARKET RISK. This is the risk that the value of a Fund's investments
will fluctuate as the stock or bond markets fluctuate and that prices
overall will decline over short or longer-term periods.

o MANAGEMENT RISK. This risk is the possibility that a Fund's manager(s)
may make poor choices in selecting securities and that the Fund will
not perform as well as other funds.

o EQUITY RISK. (Not applicable to Income Fund) Stocks (equity securities)
have no guaranteed value and their market prices can fluctuate, at
times dramatically, in response to factors including market conditions,
political and other events and developments affecting the particular
issuer or its industry or market segments.

o SMALL CAPITALIZATION RISK. (Small Cap Fund and Small Cap II Fund)
Investments in small-capitalization companies tend to be more volatile
and less easily traded than investments in large-capitalization
companies. In addition, small-capitalization companies may have more
risk because they often have limited product lines, markets or
financial resources.

3
<PAGE> 5

o NON-DIVERSIFIED RISK. (Small Cap Fund) A Fund that is not "diversified"
can invest larger proportions of its assets in a relatively small
number of issuers. Factors affecting any of these issuers could have a
greater adverse effect on the Fund's net asset value than if the Fund
were more diversified.

o FOREIGN RISK. (International Equity Fund and Income Fund) Investments
in issuers located in foreign countries may have greater price
volatility and less liquidity. Investments in foreign securities also
are subject to political, regulatory, and diplomatic risks. Changes in
currency rates are an additional risk of investments in foreign
securities. Investments in emerging markets involve additional risks.
See "Management Strategies-Emerging Market Strategy."

o INTEREST RATE RISK. (Income Fund) This is the risk that the value of a
Fund's investments in income-producing or fixed-income or debt
securities will decline as interest rates rise.

o CREDIT RISK. (Income Fund) This is the risk that the issuer of a
security will be unable or unwilling to make timely payments of
interest or principal, or to otherwise honor its obligations. This risk
is greater for lower rated securities.

OTHER IMPORTANT THINGS FOR YOU TO NOTE:

o There is no assurance that a Fund will achieve its investment
objective.

o You may lose money by investing in the Funds.

o An investment in a Fund is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

4
<PAGE> 6

RISK/RETURN SUMMARY OF THE ESC STRATEGIC APPRECIATION FUND

INVESTMENT OBJECTIVE

The Fund seeks to provide long-term capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

The Fund pursues its objective by investing, under normal market conditions,
primarily in a diversified portfolio of common stocks and securities convertible
into common stock issued by U.S. based companies. The Fund uses the Multiple
Manager Strategy. See page 21.

PRINCIPAL INVESTMENT RISKS

The principal risks of investing in the Fund are:
o Equity Risk
o Market Risk
o Management Risk

WHO MAY WANT TO INVEST?

Consider investing in the Fund if you are:

[ ] PURSUING A LONG-TERM GOAL, SUCH AS RETIREMENT
[ ] SEEKING TO ADD A GROWTH COMPONENT TO YOUR PORTFOLIO
[ ] WILLING TO ACCEPT HIGHER RISKS OF INVESTING IN THE STOCK MARKET IN EXCHANGE
FOR POTENTIALLY HIGHER LONG TERM RETURNS

This Fund will not be appropriate for anyone:

[ ] SEEKING REGULAR INCOME
[ ] PURSUING A SHORT-TERM GOAL OR INVESTING EMERGENCY RESERVES
[ ] SEEKING SAFETY OF PRINCIPAL

MANAGERS
o Westcap Investors, LLC
o Brandes Investment Partners, L.P.
o Atlantic Capital Management, LLC

5
<PAGE> 7

RISK/RETURN SUMMARY AND FUND EXPENSES

The chart and table on this page show how the Appreciation Fund has performed
and how its performance has varied from year to year. The bar chart gives some
indication of the risks of an investment in the Fund by showing changes in the
Fund's yearly performance over the past four calendar years. The table below it
compares the Fund's performance over time to that of the S&P Midcap 400 Index,
an unmanaged index generally representative of the U.S. stock market, the
Lipper Capital Appreciation Index, an equally weighted benchmark composed of
equity mutual funds, and the S&P 500 Stock Index, an unmanaged index of 500
selected common stocks, most of which are listed on the New York Stock
Exchange.

PERFORMANCE BAR CHART AND TABLE

YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES

<TABLE>
<CAPTION>
1995 1996 1997 1998

The bar chart above does not reflect the impact of any applicable sales
charges or account fees which would reduce returns. Of course, past
performance does not indicate how the Fund will perform in the future.

Both the chart and the table assume reinvestment of dividends and distributions.

The returns for Class D shares will differ from the Class A returns shown in the
bar chart because of differences in expenses of each class.

- ----------------------------------------------------------------------------
Best quarter: Q2 1997 16.96%
Worst quarter: Q3 1998 -22.05%
- ----------------------------------------------------------------------------

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1998)

Inception Date Past Year Since Inception

<S> <C> <C> <C>
---------------------------------------------------------
Class A
(with 4.50% front-end sales 7/6/94 _____% _____%
charge)
- ---------------------------------------------------------------------------------------------
Class D
(with 1.50% front-end sales 7/6/94 _____% _____%
charge)
- ---------------------------------------------------------------------------------------------

S&P MIDCAP 400 Index _____% _____%
- ---------------------------------------------------------------------------------------------

LIPPER CAPITAL APPRECIATION INDEX
_____% _____%
- ---------------------------------------------------------------------------------------------

S&P 500 Stock Index _____% _____%
- ---------------------------------------------------------------------------------------------
</TABLE>

6
<PAGE> 8

RISK/RETURN SUMMARY OF THE ESC STRATEGIC INTERNATIONAL EQUITY FUND

INVESTMENT OBJECTIVE

The Fund seeks to provide long-term capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

The Fund normally invests primarily in a diversified portfolio of publicly
traded common stocks and securities convertible into or exchangeable for common
stock of non-U.S. based companies. The Fund diversifies its investments among
various non-U.S. countries. It follows the Multiple Market Strategy and Emerging
Market Strategy. See page 22.

PRINCIPAL INVESTMENT RISKS

The principal risks of investing in the Fund are:
o Equity Risk
o Market Risk
o Management Risk
o Foreign Risk

WHO MAY WANT TO INVEST?

Consider investing in the Fund if you are:
[ ] SEEKING INTERNATIONAL DIVERSIFICATION OF INVESTMENTS
[ ] SEEKING LONG-TERM GROWTH OF CAPITAL
[ ] WILLING TO ACCEPT THE RISKS OF PRICE AND DIVIDEND FLUCTUATIONS

This Fund will not be appropriate for anyone:

[ ] SEEKING REGULAR INCOME
[ ] PURSUING A SHORT-TERM GOAL OR INVESTING EMERGENCY RESERVES
[ ] SEEKING SAFETY OF PRINCIPAL

MANAGER
o Murray Johnstone International Limited

7
<PAGE> 9

RISK/RETURN SUMMARY AND FUND EXPENSES

The chart and table on this page show how the International Equity Fund has
performed and how its performance has varied from year to year. The bar chart
gives some indication of the risks of an investment in the Fund by showing
changes in the Fund's yearly performance over the past four calendar years. The
table below it compares the Fund's performance over time to that of the Morgan
Stanley Capital International EAFE Index, an unmanaged index composed of a
sample of companies representative of the market structure of 20 European and
Pacific Basin countries and the Lipper Global Fund Index, an equally weighted
benchmark composed of equity mutual funds.

PERFORMANCE BAR CHART AND TABLE
-------------------------------

YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES

<TABLE>
<CAPTION>
1995 1996 1997 1998

Both the chart and the table assume reinvestment of dividends and distributions.

The returns for Class D shares will differ from the Class A returns shown in the
bar chart because of differences in expenses of each class.

- ---------------------------------------------------------------------------
Best quarter: Q4 1998 18.71%
Worst quarter: Q3 1998 -17.46%
- ---------------------------------------------------------------------------

AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1998)

<TABLE>
<CAPTION>
Inception Date Past Year Since Inception
------------------------------------------------
<S> <C> <C> <C>
Class A
(with 4.50% front-end sales
charge) 5/12/94 _____% _____%
- ------------------------------------------------------------------------------------
Class D
(with 1.50% front-end sales
charge) 5/12/94 _____% _____%
- ------------------------------------------------------------------------------------

Morgan Stanley Capital
International EAFE Index _____% _____%
- ------------------------------------------------------------------------------------

LIPPER GLOBAL FUND INDEX _____% _____%
- ------------------------------------------------------------------------------------
</TABLE>

8
<PAGE> 10

RISK/RETURN SUMMARY OF THE ESC STRATEGIC SMALL CAP FUND

INVESTMENT OBJECTIVE

The Fund seeks to provide investors with a high level of capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

The Fund pursues its objective by investing, under normal market conditions,
primarily in companies with market capitalizations under $800 million. The
Manager selects equity securities of companies it believes show potentially
superior prospects for growth due, for example, to promising new products, new
distribution strategies, new manufacturing technologies or new management teams
or management philosophy.

MARKET CAPITALIZATION is a common measure of the size of a company. It is the
market price of a share of the company's stock multiplied by the number of
shares that are outstanding.

PRINCIPAL INVESTMENT RISKS

The principal risks of investing in the Fund are:
o Equity Risk
o Market Risk
o Management Risk
o Small Capitalization Risk
o Non-Diversified Risk

WHO MAY WANT TO INVEST?
Consider investing in the Fund if you are:
[ ] SEEKING TO ADD A CAPITAL APPRECIATION COMPONENT TO YOUR PORTFOLIO
[ ] WILLING TO ACCEPT HIGHER RISKS ASSOCIATED WITH INVESTING IN THE SMALL
CAPITALIZATION STOCKS IN EXCHANGE FOR POTENTIALLY HIGHER LONG-TERM RETURNS
[ ] INVESTING FOR LONG-TERM GOALS, SUCH AS RETIREMENT

This Fund will not be appropriate for anyone:
[ ] PURSUING A SHORT-TERM GOAL OR INVESTING EMERGENCY RESERVES
[ ] SEEKING SAFETY OF PRINCIPAL
[ ] SEEKING REGULAR INCOME

PLEASE NOTE: THIS FUND IS CLOSED TO NEW INVESTORS.

MANAGER
o Equitable Asset Management, Inc.

9
<PAGE> 11

RISK/RETURN SUMMARY AND FUND EXPENSES

The chart and table on this page show how the Small Cap Fund has performed and
how its performance has varied from year to year. The bar chart gives some
indication of the risks of an investment in the Fund by showing changes in the
Fund's yearly performance over the last four calendar years. The table below it
compares the Fund's performance over time to that of the Russell 2000 Index, an
unmanaged index of small-cap growth stocks, the NASDAQ Industrials Index,
generally representative of the performance of small companies in the U.S.
stock market and the Lipper Small Cap Fund Index, an equally weighted benchmark
composed of equity mutual funds.

Both the chart and the table assume reinvestment of dividends and distributions.

PERFORMANCE BAR CHART AND TABLE
-------------------------------

YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES

<TABLE>
<CAPTION>
1995 1996 1997 1998

Both the chart and the table assume reinvestment of dividends and
distributions.

The returns for Class D shares will differ from the Class A returns shown in the
bar chart because of differences in expenses of each class.

- ----------------------------------------------------------------------------
Best quarter: Q3 1997 19.19%
Worst quarter: Q3 1998 -25.92%
- ----------------------------------------------------------------------------

AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1998)

<TABLE>
<CAPTION>
Inception Date Past Year Since Inception
-------------------------------------------------
<S> <C> <C> <C>
Class A
(with 4.50% front-end sales
charge) 6/8/94 _____% _____%
- -------------------------------------------------------------------------------------
Class D
(with 1.50% front-end sales
charge) 6/8/94 _____% _____%
- -------------------------------------------------------------------------------------

RUSSELL 2000 INDEX _____% _____%
- -------------------------------------------------------------------------------------

NASDAQ INDUSTRIALS INDEX _____% _____%
- -------------------------------------------------------------------------------------

LIPPER SMALL CAP FUND INDEX _____% _____%
- -------------------------------------------------------------------------------------
</TABLE>

<PAGE> 12

RISK/RETURN SUMMARY OF THE ESC STRATEGIC SMALL CAP II FUND (formerly ESC
Strategic Growth Fund)

INVESTMENT OBJECTIVE

The Fund seeks a high level of capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

The Fund seeks to achieve its objective by normally investing primarily in
equity securities of companies with market capitalizations under $800 million.
In selecting securities for the Fund, the Manager employs fundamental analysis
of traditional small capitalization companies it believes have prospects for
rapid growth.

MARKET CAPITALIZATION is a common measure of the size of a company. It is the
market price of a share of the company's stock multiplied by the number of
shares that are outstanding.

PRINCIPAL INVESTMENT RISKS

The principal risks of investing in the Fund are:
o Equity Risk
o Market Risk
o Management Risk
o Small Capitalization Risk

WHO MAY WANT TO INVEST?

Consider investing in the Fund if you are:
[ ] SEEKING TO ADD A CAPITAL APPRECIATION COMPONENT TO YOUR PORTFOLIO
[ ] WILLING TO ACCEPT HIGHER RISKS ASSOCIATED WITH INVESTING IN THE SMALL
CAPITALIZATION STOCKS IN EXCHANGE FOR POTENTIALLY HIGHER LONG-TERM RETURNS
[ ] INVESTING FOR LONG-TERM GOALS, SUCH AS RETIREMENT

This Fund will not be appropriate for anyone:
[ ] PURSUING A SHORT-TERM GOAL OR INVESTING EMERGENCY RESERVES
[ ] SEEKING SAFETY OF PRINCIPAL
[ ] SEEKING REGULAR INCOME

MANAGER
o Equitable Asset Management, Inc.

11
<PAGE> 13

RISK/RETURN SUMMARY AND FUND EXPENSES

The chart and table on this page show how the Small Cap II Fund has performed
and how its performance has varied from year to year. The bar chart gives some
indication of the risks of an investment in the Fund by showing the Fund's
performance during its first full calendar year. The table below it compares
the Fund's performance over time to that of the Russell 2000 Index, an
unmanaged index of small-cap growth stocks and the Lipper Small Cap Fund Index,
an equally weighted benchmark composed of equity mutual funds.

Both the chart and the table assume reinvestment of dividends and distributions.

PERFORMANCE BAR CHART AND TABLE
-------------------------------

TOTAL RETURN AS OF 12/31/98 FOR CLASS A SHARES

<TABLE>
<CAPTION>
1998

The bar chart above does not reflect the impact of any applicable sales charges
or account fees which would reduce returns. Of course, past performance does not
indicate how the Fund will perform in the future.

Both the chart and the table assume reinvestment of dividends and distributions.

The returns for Class D shares will differ from the Class A returns shown in the
bar chart because of differences in expenses of each class.

----------------------------------------------------------------------------
Best quarter: Q4 1998 17.55%
Worst quarter: Q3 1998 -27.76%
----------------------------------------------------------------------------

AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1998)

<TABLE>
<CAPTION>
Inception Date Past Year Since Inception
------------------------------------------------------
<S> <C> <C> <C>
Class A
(with 4.50% front-end sales charge) 1/28/97 _____% _____%
- -------------------------------------------------------------------------------------------------
Class D
(with 1.50% front-end sales charge) 1/28/97 _____% _____%
- -------------------------------------------------------------------------------------------------

RUSSELL 2000 INDEX _____% _____%
- -------------------------------------------------------------------------------------------------

LIPPER SMALL CAP FUND INDEX _____% _____%
- -------------------------------------------------------------------------------------------------
</TABLE>

12
<PAGE> 14

RISK/RETURN SUMMARY OF THE ESC STRATEGIC INCOME FUND

INVESTMENT OBJECTIVES

The Fund seeks a high level of current income with a secondary objective of
total return.

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests primarily in a diversified portfolio of higher yielding, lower
rated corporate, government and other debt instruments of U.S. issuers,
although up to 35% of its assets may be invested in debt instruments of
non-U.S. issuers. The Fund may invest up to 100% of its assets in debt
securities rated below investment grade. Such debt securities are commonly
known as "junk bonds." The Fund also follows the Emerging Market Strategy.
See page 22.

PRINCIPAL INVESTMENT RISKS

The principal risks of investing in the Fund are:
o Market Risk
o Management Risk
o Foreign Risk
o Interest Rate Risk
o Credit Risk

WHO MAY WANT TO INVEST?

Consider investing in the Fund if you:
[ ] ARE SEEKING A HIGH LEVEL OF CURRENT INCOME TOGETHER WITH TOTAL RETURNS
[ ] LOOKING TO ADD A MONTHLY INCOME COMPONENT TO YOUR PORTFOLIO
[ ] WILLING TO ACCEPT THE RISKS OF PRICE AND DIVIDEND FLUCTUATIONS

This Fund will not be appropriate for anyone:

[ ] INVESTING EMERGENCY RESERVES
[ ] SEEKING THE HIGHEST ASSURANCE OF SAFETY OF PRINCIPAL

MANAGER
o Cincinnati Asset Management, Inc.

13
<PAGE> 15

RISK/RETURN SUMMARY AND FUND EXPENSES

The chart and table on this page show how the Income Fund has performed and how
its performance has varied from year to year. The bar chart gives some
indication of the risks of an investment in the Fund by showing changes in the
Fund's yearly performance over the past four calendar years. The table below it
compares the Fund's performance over time to that of the Lehman Brothers High
Yield Fund Index and the Lipper Global Income Fund Index, an equally weighted
benchmark composed of mutual funds.

PERFORMANCE BAR CHART AND TABLE
-------------------------------

Year-by-Year Total Returns as of 12/31 for Class A Shares

<TABLE>
<CAPTION>
1995 1996 1997 1998

Both the chart and the table assume reinvestment of dividends and distributions.

The returns for Class D shares will differ from the Class A returns shown in the
bar chart because of differences in expenses of each class.

- ----------------------------------------------------------------------------
Best quarter: Q2 1995 6.79%
Worst quarter: Q2 1997 -1.77%
- ----------------------------------------------------------------------------

AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1998)*

<TABLE>
<CAPTION>
Inception Date Past Year Since Inception
--------------------------------------------------
<S> <C> <C> <C>
Class A
(with 4.50% front-end sales charge) 5/4/94 _____% _____%
- -----------------------------------------------------------------------------------------------------------------
Class D
(with 1.50% front-end sales charge) 5/4/94 _____% _____%
- -----------------------------------------------------------------------------------------------------------------

Lehman Brothers High Yield Fund
Index _____% _____%
- -----------------------------------------------------------------------------------------------------------------

LIPPER GLOBAL INCOME FUND INDEX _____% _____%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

* For current performance information, including the Fund's 30-day yield, call
1-800-261-FUND (3863).

14
<PAGE> 16
FUND EXPENSES

FEES AND EXPENSES
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUNDS.

Annual Fund operating expenses are paid out of Fund assets, and are reflected in
the share price. The fees and expenses for each Fund and Class are based upon
the actual operating expenses of that Fund and Class for the fiscal year ended
March 31, 1999.

The Funds' Adviser has voluntarily agreed to waive a portion of its fee with
respect to certain Funds. The voluntary fee waiver will cause a Fund's return to
be higher than it would otherwise be without the fee waiver.
(See the footnotes to the Fee Table below.)

<TABLE>
<CAPTION>
FEE TABLE
---------

APPRECIATION INTERNATIONAL SMALL CAP II
SHAREHOLDER FEES FUND EQUITY FUND SMALL CAP FUND FUND INCOME FUND
(FEES PAID DIRECTLY FROM YOUR
INVESTMENT) Class A Class D Class A Class D Class A Class D Class A Class D Class A Class D

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales (Load)
Imposed on Purchases (as a
Percentage of offering price) 4.50% 1.50% 4.50% 1.50% 4.50% 1.50% 4.50% 1.50% 4.50% 1.50%
- ----------------------------------------------------------------------------------------------------------------------------------

Maximum Deferred Sales Charge
(Load) (as a percentage of
offering or sale price,
whichever is less) None None None None None None None None None None
- ----------------------------------------------------------------------------------------------------------------------------------

ANNUAL FUND OPERATING EXPENSE
(EXPENSE THAT ARE DEDUCTED FROM
FUND ASSETS)

Management fees(1) 1.00% 1.00% 1.00% 1.00% 1.25% 1.00% 1.00% 1.00% 1.25% 1.00%
- ----------------------------------------------------------------------------------------------------------------------------------

Distribution and Service
(12b-1) fees(2) 0.25% 0.75% 0.25% 0.25% 0.25% 0.25% 0.75% 0.75% 0.75% 0.75%
- ----------------------------------------------------------------------------------------------------------------------------------

Other expenses(3) 0.72% 0.72% 1.30% 1.30% 0.54% 0.54% 0.77% 0.77% 0.97% 0.97%
- ----------------------------------------------------------------------------------------------------------------------------------

TOTAL ANNUAL FUND
OPERATING EXPENSES 1.97% 2.47% 2.55% 3.05% 1.79% 2.29% 2.27% 2.77% 2.22% 2.72%
- ----------------------------------------------------------------------------------------------------------------------------------

FEE WAIVERS/REIMBURSEMENTS -- -- 0.05% 0.05% -- -- 0.27% 0.27% 0.22% 0.22%
- ----------------------------------------------------------------------------------------------------------------------------------

NET ANNUAL FUND(1)
OPERATING EXPENSES 1.97% 2.47% 2.50% 3.00% 1.79% 2.29% 2.00% 2.50% 2.00% 2.50%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

- --------------------------
1 The Adviser has contractually agreed to waive a portion of its fees and/or
reimburse the Funds to limit Net Annual Fund Operating Expenses to the
following until at least March 31, 2000: Appreciation Fund, 2.00% (Class A)
and 2.50% (Class D); International Equity Fund, 2.50% (Class A) and 3.00%
(Class D); Small Cap Fund, 2.00% (Class A) and 2.50% (Class D); Small Cap
II Fund, 2.00% (Class A) and 2.50% (Class D); Income Fund, 2.00% (Class A)
and 2.50% (Class D). You will be notified if these waivers or
reimbursements are discontinued after that date.

2 Investors should be aware that, due to the distribution fees, a long-term
shareowner in a Fund may pay over time more than the economic equivalent of
the maximum front-end sales charge permitted under the rules of the
National Association of Securities Dealers, Inc.

3 Certain Service Organizations may receive fees from a Fund in amounts up to
an annual rate of 0.25% of the daily net asset value of the Fund shares
owned by the shareholders with whom the Service Organization has a
servicing relationship.

15
<PAGE> 17

RISK/RETURN SUMMARY AND FUND EXPENSES

EXPENSE EXAMPLE

Use the table at right to compare fees and expenses with those of other mutual
funds. It illustrates the amount of fees and expenses you would pay, assuming
the following:

o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
o reinvestment of all dividends and distributions

Because this example is hypothetical and for comparison only, your actual costs
will be different.

<TABLE>
<CAPTION>
1 3 5 10
APPRECIATION FUND Year Years Years Years

<S> <C> <C> <C> <C>
CLASS A SHARES $641 $1,040 $1,465 $2,642

CLASS D SHARES $396 $ 908 $1,446 $2,914
- -------------------------------- --------- --------- --------- ---------

INTERNATIONAL EQUITY FUND

CLASS A SHARES $692 $1,203 $1,740 $3,202

CLASS D SHARES $448 $1,073 $1,723 $3,461
- -------------------------------- --------- --------- --------- ---------

SMALL CAP FUND

CLASS A SHARES $624 $ 988 $1,376 $2,461

CLASS D SHARES $379 $ 855 $1,357 $2,736
- -------------------------------- --------- --------- --------- ---------

SMALL CAP II FUND

CLASS A SHARES $644 $1,103 $1,587 $2,918

CLASS D SHARES $399 $ 971 $1,569 $3,184
- -------------------------------- --------- --------- --------- ---------

INCOME FUND

CLASS A SHARES $___ $_____ $_____ $_____

CLASS D SHARES $___ $_____ $_____ $_____
- -------------------------------- --------- --------- --------- ---------
</TABLE>

16
<PAGE> 18

INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- -------------------------------------------------------------------------------

The following section describes the investment objectives, strategies and risks
of each of the Funds. More detailed information on investments and strategies,
and related risks, affecting the Funds is found in "Description of Securities
and Investment Practices of the Funds" on page 25. Note also that the Adviser
uses certain management strategies intended to increase the Funds' return and to
lower volatility, to the extent consistent with a particular Fund's investment
objective. See "Management Strategies" on page 23.

ESC STRATEGIC APPRECIATION FUND
- -------------------------------------------------------------------------------

Ticker Symbol: Class A ESSAX Class D ESSDX

INVESTMENT OBJECTIVE, POLICIES AND STRATEGIES

Investment Objective: The Fund's investment objective is long-term capital
appreciation.

Principal Investment Strategies: The Fund invests principally in publicly traded
common stocks and securities convertible into or exchangeable for common stock,
primarily of U.S.-based companies. The Adviser has determined to use the
Multiple Manager Strategy for this Fund because its analysis indicates that the
use of several Managers will tend to reduce the risk from short-term price
volatility of stocks. The Fund has authority to invest in debt securities
(including U.S. Government securities, money market instruments, and
investment-grade corporate obligations) where consistent with its investment
objective. The Fund may also invest all or a portion of its assets in these debt
securities to address adverse market conditions or for cash management, and
these investments may cause to Fund to fail to achieve its investment objective.
The Fund may invest in obligations that are rated BBB by Moody's Investors
Service, Inc. ("Moody's") or Baa by Standard & Poor's Corporation ("S&P).

The Fund employs a defensive disciplined rebalancing process which forces the
sale of over-weighted and presumably over-valued sectors and the purchase of
under-weighted and presumably under-valued sectors. This process seeks to create
value over time.

The Fund's Managers are Westcap Investors, LLC., Brandes Investment Partners,
L.P., and Atlantic Capital Management, LLC.

Principal Risks: The principal risks of investing in the Fund are equity risk
and market risk. However, other important risks are foreign risk, interest rate
and credit risk, including risks related to investment in securities rated BBB
or Baa by Moody's or S&P, which may be deemed to have speculative
characteristics.

ESC STRATEGIC INTERNATIONAL EQUITY FUND
- -------------------------------------------------------------------------------

Ticker Symbol: Class A ESGAX Class D ESGDX

INVESTMENT OBJECTIVE, POLICIES AND STRATEGIES

Investment Objective: The Fund's investment objective is long-term capital
appreciation.

17
<PAGE> 19

Principal Investment Strategies: The Fund invests in publicly traded common
stocks and securities convertible into or exchangeable for common stocks. The
Fund uses the Multiple Market Strategy and the Emerging Market Strategy (see
"Management Strategies.) The Fund diversifies its investments across various
markets, primarily outside the U.S., that have shown differing return
characteristics. As a fundamental policy, under normal market conditions, the
Fund will have at least 65% of its total assets invested in issuers of at least
three different countries (not including the United States). In selecting
investments for the Fund in mature markets, the Fund's Managers seeks smaller
companies it believes have potential for above-average growth. The Fund may also
invest in securities of issuers in emerging market countries. The Fund may
invest in investment grade debt securities (including U.S. Government
securities, money market instruments, and corporate obligations) and other asset
classes that appear to offer opportunity for capital appreciation. The Fund may
also invest all or a portion of its assets in these debt securities to address
adverse market conditions or for cash management, and these investments may
cause the Fund to fail to achieve its investment objective.

[ADD BUY-SELL CRITERIA]

The Fund's Manager is Murray Johnstone International Limited.

Principal Risks: Principal risks of investing in the Fund are equity and market
risk, foreign risk, interest rate and credit risk, including risks related to
investment in obligations that are rated BBB by Moody's or Baa by S&P, which may
have speculative characteristics.

ESC STRATEGIC SMALL CAP FUND
- -------------------------------------------------------------------------------

Ticker Symbol: Class A ESCAX Class D ESCDX

ESC STRATEGIC SMALL CAP II FUND
- -------------------------------------------------------------------------------

Ticker Symbol: Class A EGRAX Class D N/A

Shares of ESC Strategic Small Cap Fund are currently available only to existing
shareholders of the Fund.

INVESTMENT OBJECTIVE, POLICIES AND STRATEGIES

Investment Objective: The investment objective of each of these Funds is a high
level of capital appreciation.

Principal Investment Strategies: The investment policies and strategies of each
of these Funds are substantially identical, although the portfolio securities
held by each Fund will differ for historical and other reasons. In particular,
ESC Strategic Small Cap II Fund adopted its current name and investment policies
comparable to those of ESC Strategic Small Cap Fund on January 1, 1999. Various
other factors, such as timing of cash flow, and position size and availability,
and the fact that ESC Strategic Small Cap Fund is non-diversified will also
result in portfolio differences. In managing each Fund's portfolio, the Manager
attempts to treat each Fund fairly, but there can be no assurance that any
transaction for one Fund can or will be duplicated for the other Fund.

Each Fund will, under normal circumstances, invest primarily (at least 65% of
total assets) in equity securities of issuers with market capitalization of $1
billion or less. As a matter of operating policy, each

18
<PAGE> 20

Fund's investments will normally be principally in issuers with market
capitalization of $800 million or less at the time of investment. Although each
Fund will invest principally in common stocks, each may also invest in
convertible preferred, participating preferred and preferred stocks. The Funds'
equity investments may be traded on domestic or foreign securities exchanges or
in over-the-counter markets. During periods of adverse market conditions, or
anticipated adverse market conditions, each Fund may invest all or a portion of
its assets in debt securities (including U.S. Government securities, money
market instruments, and corporate obligations) that are rated A or better by
Moody's or S&P or, if unrated, are deemed of comparable quality by the Manager.
These investments may cause the particular Fund to fail to achieve its
investment objective. Each Fund may also invest in these debt securities for
cash management and liquidity purposes.

The Funds' Manager will select securities that it believes offer superior
prospects for growth due, for example, to promising new products, new
distribution strategies, new manufacturing technologies or new management teams
or management philosophy. In the Manager's view, companies of this type tend to
be responsible for technological breakthroughs and/or unique solutions to market
needs. In selecting portfolio companies, the Manager considers the growth rate
in earnings, financial performance, management strengths and weaknesses, and
current market valuation relative to earnings growth as well as historic and
comparable company valuations. The Manager also analyzes the level and nature of
the company's debt, cash flow, working capital and the quality of the company's
assets. Typically, companies included in the Funds' portfolios will show
earnings growth exceeding 20% compared to the previous year's comparable period.
Companies with excessive levels of debt will generally be avoided.

By developing and maintaining contacts with management, customers, competitors
and suppliers of current and potential portfolio companies, the Manager attempts
to invest in those companies that are not well followed generally by securities
analysts and the financial press. Because such securities tend not to be
efficiently priced, the Manager believes they offer potentially superior
investment opportunities. The Manager favors common stocks of companies whose
prices when purchased are between five and fifteen times projected earnings for
the coming year.

Although the Funds' portfolio securities are generally acquired for the long
term, they may be sold under any of the following circumstances: (a) the
anticipated price appreciation has been achieved or is no longer probable; (b)
the Manager's analysis indicates that the company's fundamentals may be
deteriorating; (c) general market expectations regarding the company's future
performance exceed those of the Managers; or (d) alternative investments, in the
Manager's view, offer superior potential for appreciation.

The Funds' Manager is Equitable Asset Management, Inc. ("EAM").

Principal Risks: The principal risks of investing in these Funds are equity
risk, market risk and foreign risk. Furthermore, investing in companies that are
undergoing internal change may involve special risks due to the unknown effects
of change.

Additionally, ESC Strategic Small Cap Fund is not a "diversified" investment
company and therefore may invest substantial portions of its assets in
securities of particular issuers. This exposes the Fund to greater risk of
negative developments affecting such an issuer than would be the case for a
diversified investment company. The Fund does intend, however, to meet the
regulated investment company diversification requirements under the Internal
Revenue Code of 1986.

<PAGE> 21

ESC STRATEGIC INCOME FUND
- -------------------------------------------------------------------------------

Ticker Symbol: Class A ESIAX Class D ESIDX

INVESTMENT OBJECTIVES, POLICIES AND STRATEGIES

Investment Objectives: The Fund's investment objective is a high level of
current income, with a secondary objective of total return.

Principal Investment Strategies: The Fund invests primarily in corporate,
government and other debt instruments of U.S., non-U.S. and international
issuers. Under normal market conditions, at least 65% of the Fund's total assets
will be invested in income-producing securities. Investments in foreign
securities will be limited to 35% of its assets. Up to 100% of the Fund's assets
may be invested in "junk bonds." Junk bonds are securities that are rated below
investment grade -- i.e., that are rated below BBB by Moody's or below Baa by
S&P -- or that, if unrated, are deemed of comparable quality. Junk bonds also
include securities that are in default (rated D by S&P), although such holdings
by the Fund are expected to be minimal.

In selecting debt securities for the Fund, the Fund's Manager attempts to
achieve high current yield by employing a discipline that focuses on total
return over a full market/economic cycle, striving to preserve capital in down
markets. The Manager employs a "bottom-up" approach, identifying investment
opportunities that present the most attractive value with strong prospects for
income and growth. The Fund follows the Emerging Market Strategy with respect
to its non-U.S. and international issuers (see "Management Strategies.")

[Add sell criteria.]

The Fund's Manager is Cincinnati Asset Management, Inc.

Principal Risks: The principal risks of investing in the Fund include interest
and credit risk and foreign risk. Securities rated Baa by Moody's or BBB by S&P
may have speculative characteristics. Junk bond investments typically have
higher yields than higher rated securities. However, junk bond investments also
have greater risk of untimely payment of principal and interest, as well as
greater default and other risks, than higher rated.
See also "Description of Securities and Investment Practices of the Funds."

Special considerations concerning Lower-Rated Securities, Junk Bonds and
Sovereign Debt: As noted, the Fund may invest without limit in medium and
lower-rated securities that may be deemed to have major risk exposures in the
event of adverse conditions. The Manager's determination that a particular
security will be advantageous for the Fund may not be accurate. Some of these
securities may be vulnerable to default and some may already be in default.
Although these securities tend to be less sensitive to changes in interest rates
than higher-rated securities, they are more vulnerable to economic and other
conditions affecting the issuer. Moreover, the issuers of these securities are
often less creditworthy and may be highly leveraged, so that they may not be
able to meet their obligations on debt instruments in the event of adverse
developments. These securities, moreover, may be subordinated to other
obligations of the issuer, so that priority will go to making payments on the
more senior obligations.

Debt securities issued by the governments of developing and emerging countries
("sovereign debt"), and payments due on these securities, are directly exposed
to risks from political, social and economic changes in those countries, as well
as to changes in balance of payments, interest rates, cash flow, availability of
foreign exchange and size of overall debt burden. Currency fluctuations and
devaluations, as well as the issuer's ability to obtain credit from
international lenders, can affect the value of these

20
<PAGE> 22

securities, the value of payments on these obligations and the ability of the
obligor to pay. The Fund may have limited recourse against a foreign sovereign
in the event of default. Holders of these securities may also be asked to
participate in restructurings under arrangements that are likely to be less
favorable to the Fund than its original investment. Adverse developments may
make the government unable or unwilling to meet its obligations to pay interest
and principal in full, in a timely manner, or at all. See "Management Strategies
- -- Emerging Market Strategy" for more discussion of risks in these countries.

Additionally, secondary markets for lower rated securities are less liquid than
for higher rated securities, so it may be difficult for the Fund to dispose of
these securities or to sell them at a favorable price. The limited market may
also make it difficult for the Fund to obtain accurate prices on its portfolio
securities from time to time, which may require pricing judgements to be made by
the Company's board of directors. See the SAI for a fuller discussion of
lower-rated and sovereign debt securities.

MANAGEMENT STRATEGIES

The Adviser uses the following strategies in an effort to increase the return of
the Funds and to lower their volatility, to the extent consistent with the
objectives of each Fund.

Multiple Manager Strategy. The Adviser expects to use the Multiple Manager
Strategy for certain of the Funds from time to time when such strategy appears
advisable for the particular Fund. Under this strategy, the Adviser allocates
portions of a Fund's assets among multiple specialist managers with superior
performance records that have dissimilar investment styles and security
selection disciplines. The Adviser monitors the performance of both the total
Fund portfolio and of each Manager. From time to time the Adviser will
reallocate Fund assets among individual Managers, or recommend that particular
Managers be hired or terminated, when the Adviser believes the action is
appropriate to achieve the overall objectives of the particular Fund. The
Adviser intends to recommend reallocations if, under the Adviser's strategic
analysis, a Manager's allocation becomes over-weighted through extended
appreciation and so that undervalued securities and management styles receive
additional allocations. Under certain circumstances, when deemed in the best
interests of a Fund and its shareholders, the Adviser may recommend that a
Manager's allocation be set temporarily at zero.

The Multiple Manager Strategy is based on analysis of performance of investment
managers which indicates that even highly successful investment managers
experience variations in performance which may be caused by factors or
conditions that affect the particular universe of securities emphasized by that
investment manager or otherwise impact his particular investment style. By
recognizing the effect of these factors on particular Managers, the Adviser can
reallocate or rebalance the assets of a Fund among Managers from time to time to
provide a more favorable risk/reward relationship. As a result of this strategy,
the Adviser hopes both to increase the prospects for investment return and to
reduce market risk.

To the extent the Adviser is successful in (a) identifying and retaining
Managers who have achieved superior investment records and have appropriately
divergent investment styles, (b) monitoring Managers' performance and adherence
to stated styles, and (c) strategically allocating Fund assets among multiple
Managers, over time the Adviser believes the Funds with multiple Managers may
achieve a better rate of return with lower volatility than would typically be
expected of any one management style.

The Adviser selects Managers based on the continuing quantitative and
qualitative evaluation of their skills and proven abilities in managing assets
pursuant to specific investment styles. While superior performance is regarded
as the ultimate goal, short-term performance by itself is not a significant
factor in selecting or terminating Managers, and the Adviser does not anticipate
frequent changes in Managers. Criteria for employment of Managers include, but
are not limited to, the following:

(1) Managers must display discipline and thoroughness in pursuit of stated
investment objectives.

<PAGE> 23

(2) Managers must maintain over time consistently above-average performance.
Most importantly, Managers must display an ability to conserve values in down
markets.

(3) Managers must demonstrate a high level of service and responsibility to
clients. The Adviser monitors continually the performance of Managers as well as
management firm staffs and organizations to assess overall competence.

The Company has received an exemptive order (the "Order") from the Securities
and Exchange Commission that permits the Adviser, subject to certain conditions
to retain new Managers (except a Manager affiliated with the Adviser) without
shareholder approval of the contracts with those Managers. Within 60 days of
retaining a new Manager, shareholders of any affected Fund will receive
information similar to what would have been provided in a proxy statement,
except for fees to be paid to the Manager. The Order relieves the Funds from
requirements to disclose fees paid to individual Managers (except Managers
affiliated with the Adviser, such as EAM) in the prospectus and other documents.
Aggregate advisory fees paid by each Fund, aggregate fees paid to Managers of
each Fund, fees retained by the Adviser with respect to each Fund and fees paid
to Managers affiliated with the Adviser will be disclosed.

From time to time, the Adviser may recommend that the services of a Manager be
terminated. The criteria for termination may include, but are not limited to,
the following:

(1) Departure of key personnel from the Manager's firm.

(2) Acquisition of the Manger by a third party.

(3) Change in or departure from investment style.

(4) Inadequate investment process which could result in inconsistent security
selection.

Multiple Asset Strategy. In the Adviser's view, approximately 94% of return
variability among investment portfolios is attributable to asset allocation.
Therefore, short-term risk of price volatility associated with equity
investments should be reduced by broad representation in asset groups that
historically have lower market risk than equities--principally fixed income
securities.

Multiple Market Strategy. For certain Funds, the Adviser will seek to reduce
market risk through exposure to international markets which, as a group, have
exhibited counter-cyclical characteristics compared to U.S. markets. The U.S.
equity market capitalization currently represents approximately 43% of global
equity market capitalization. Additional return benefits may be achieved by the
broader security selection available in international markets.

Emerging Company/Mature Market Strategy. When a Fund invests in mature markets,
the Adviser will seek above-average return by allocating assets to Managers that
invest in companies (a) with earnings growth that exceeds that of the economy,
(b) that have a market capitalization less than the average for that market, and
(c) that are under-recognized by investors. The Adviser's analysis indicates
that, over time, such stocks tend to outperform larger capitalization indices
and are less subject to macro-economic, cyclical forces.

Emerging Market Strategy. The Adviser may seek to enhance investment return for
ESC Strategic International Equity Fund and ESC Strategic Income Fund through
investing in emerging markets that are exhibiting or are in the early stages of
exhibiting very high economic growth rates relative to countries in the
Organization for European Community Development ("OECD"). An emerging market may
be defined as any country considered to be emerging or developing by the World
Bank or the United Nations. Currently, the Adviser anticipates emphasis, for
Funds using this strategy, in Latin America (Argentina, Brazil, Chile, Columbia,
Costa Rica, Jamaica, Mexico, Peru, Trinidad and Tobago, Uruguay and Venezuela)
and Asia (China, India, Indonesia, Korea, Malaysia, Pakistan, Philippines,
Singapore, Sri

22
<PAGE> 24

Lanka, Taiwan and Thailand). It is anticipated that countries in Southern and
Eastern Europe, the Mid-East and Africa will be added to this list.

Investment in emerging market countries presents risk in greater degree than,
and in addition to, those presented by investment in foreign issuers in general.
A number of emerging market countries restrict, to varying degrees, foreign
investment in stocks. Repatriation of investment income, capital, and the
proceeds of sales by foreign investors may require governmental registration
and/or approval in some emerging market countries. A number of the currencies of
developing countries have experienced significant declines against the U.S.
dollar in recent years, and devaluation may occur subsequent to investments in
these currencies by the Fund. Inflation and rapid fluctuations in inflation
rates have had and may continue to have negative effects on the economies and
securities markets of certain emerging market countries. Many of the emerging
securities markets are relatively small, have low trading volumes, suffer
periods of relative illiquidity, and are characterized by significant price
volatility. There is a risk in emerging market countries that a future economic
or political crisis could lead to price controls, forced mergers of companies,
expropriation or confiscatory taxation, seizure, nationalization, or creation of
government monopolies, any of which may have a detrimental effect on the Funds'
investments.

DESCRIPTION OF SECURITIES AND
INVESTMENT PRACTICES OF THE FUNDS

This section describes certain securities in which the Funds may invest, as well
as certain investment practices of the Funds. These and other securities and
practices are described more fully in the SAI.

All Funds may invest or engage in:

o Obligations of the U.S. government, its agencies and instrumentalities --
some of these obligations may be backed by the full faith and credit of the
U.S. Treasury, while others may have lesser backing.

o Dollar-denominated obligations of U.S. or foreign banks with over $1
billion in total assets at the time of investment by a Fund. U.S. banks
must additionally be Federal Reserve System members, or must be examined by
the Controller of the Currency or have deposits insured by the Federal
Deposit Insurance Corporation.

o Commercial paper.

o Corporate debt obligations.

o Variable and floating rate master demand notes.

o Foreign securities, including U.S. dollar- or foreign-currency denominated
corporate securities, sponsored or unsponsored depository receipts related
to those securities, foreign bank securities, and foreign government and
international agency securities. Investments in foreign securities involve
higher costs and risks that are different from investments in U.S.
securities. These risks come from differences in securities markets, tax
policies, the level of government regulation, disclosure and accounting
standards, and from currency fluctuations. There is also risk of negative
government actions and from political and social unrest. For unsponsored
depository receipts, a Fund may not receive full or timely information
regarding the securities, there may be delays in the Fund's receipts of
dividends and other payments, and it may bear more costs than for a
sponsored depository receipt. Emerging market investments involve
additional risks. See "Management Strategies-Emerging Market Strategy."

23
<PAGE> 25

o Hedging transactions, including forward foreign currency transactions, and
futures and options transactions. Hedging transactions are designed to
offset negative movements in the markets for certain currencies or
securities. The Managers are not obliged to enter into hedging
transactions, and hedging transactions do not always achieve their desired
purpose. They can also cause a Fund to lose money or to fail to get the
benefit of a gain if, for example, the markets move in an unanticipated
direction or if the Fund cannot close out of a position.

o Repurchase agreements

o Loans of portfolio securities. A Fund may lend its portfolio securities
worth up to one-third of its total assets to brokers, dealers and other
financial institutions. Loans are subject to certain conditions, and must
be fully collateralized throughout their term. These loans involve risk to
the extent the borrower defaults on its obligations.

ESC Strategic Income Fund may invest in:

o Securities on a "when-issued" or forward commitment basis, where the
purchase price is fixed on a contract date for securities to be paid for
and delivered at a later date beyond the customary settlement time. The
Fund must maintain a segregated account of liquid assets to meet this
commitment, and risks loss if the price of the security declines before the
settlement date

o Mortgage-related securities, including mortgage pass-through securities
issued by U.S. Government-backed entities or by commercial firms,
Collateralized Mortgage Obligations ("CMOs") issued by government and
non-government entities, and Stripped Mortgage-Backed Securities ("SMBS").
Mortgage pass-through securities are subject to prepayment risk. Although
the value of these securities, like other interest-bearing securities, tend
to vary inversely with interest rates, if interest rates decline, the value
of mortgage pass-through securities with a prepayment feature does not
increase as much as other income securities. Increase in interest rates
tends to lengthen the term of mortgage pass-through securities, which can
cause the average portfolio maturity and duration of the Fund to increase.
CMOs are structured securities collateralized by whole mortgage loans or
pools of mortgage pass-through securities. The various classes of CMOs have
different maturities, with payments of principal and interest going first
to the holders of the shortest maturity class. SMBS generally have two
classes: an "IO" class, which entitles holders to distributions consisting
solely of interest payments from the underlying obligation; and a "PO"
class, on which holders receive distributions based solely on principal
payments from the underlying assets.

o Other asset-backed securities, based on other types of pooled obligations.

o Zero coupon bonds (which do not pay interest until maturity) and
pay-in-kind securities (which pay interest in the form of additional
securities). These securities may be more speculative than securities which
pay income periodically and in cash. Further, the Fund is required to
accrue and pay out annually to shareholders its anticipated earnings on
these securities prior to its actual receipt of those earnings.

24
<PAGE> 26

FUND MANAGEMENT
- -------------------------------------------------------------------------------

THE INVESTMENT ADVISER

SunTrust Equitable Securities ("STES" or the "Adviser"), 800 Nashville City
Center,, Nashville, Tennessee 37219-1743 is the adviser for the Funds. STES, a
wholly-owned subsidiary of SunTrust Banks, Inc., was founded in 1930 and manages
more than $1.5 billion in assets.

W. Howard Cammack, Jr. has primary responsibility for the Adviser's advice to
the Funds. Mr. Cammack joined the Adviser in 1979. He is presently a Director of
the Company, is head of the Adviser's Investment Advisory Group, and is a member
of the Board of Directors of the Adviser, Equitable Trust Company, and Equitable
Asset Management, Inc.

For these advisory services, the Funds paid as follows during their fiscal year
ended 3/31/99:

<TABLE>
<CAPTION>
- ------------------------------------------------------- --------------------------
PERCENTAGE OF AVERAGE
NET ASSETS AS OF 3/31/99
- ------------------------------------------------------- --------------------------
<S> <C>
ESC Strategic Appreciation Fund 1.00%

- ------------------------------------------------------- --------------------------
ESC Strategic International Equity Fund 1.00%

- ------------------------------------------------------- --------------------------
ESC Strategic Small Cap Fund 1.00%

- ------------------------------------------------------- --------------------------
ESC Strategic Small Cap II Fund 0.75%*

- ------------------------------------------------------- --------------------------
ESC Strategic Income Fund 1.00%

- ------------------------------------------------------- --------------------------
</TABLE>

* The Adviser waived a portion of its contractual fees for the most recent
fiscal year. Contractual fees without waivers would be 1.25%.

THE MANAGERS

Equitable Asset Management, Inc. ("EAM"), located at 800 Nashville City Center,,
Nashville, Tennessee, is Manager to the ESC Strategic Small Cap Fund and the ESC
Strategic Small Cap II Fund. EAM, an affiliate of the Adviser, was formed in
1988. Frank D. Inman, a Director of EAM, has primary investment responsibility
for management of the Small Cap and Small Cap II Funds. Mr. Inman has twenty
years of investment experience.

Westcap Investors, LLC, located at 11111 Santa Monica Blvd., Suite 820, Los
Angeles

25
<PAGE> 27

California, 90025, is part of the advisory group responsible for the management
of the ESC Strategic Appreciation Fund.

Brandes Investment Partners, L.P., located at 12750 High Bluff Drive, San Diego,
California 92130, is part of the advisory group responsible for management of
the ESC Strategic Appreciation Fund. Brandes has been providing investment
advisory services since 1974.

Atlantic Capital Management, LLC, located at 909 East Main Street, Richmond,
Virginia 23219, is also part of the advisory group responsible for management of
the ESC Strategic Appreciation Fund. Atlantic Capital was organized in 1982 as
Scott & Stringfellow Capital Management, Inc. and reorganized under its present
name in February, 1998.

Murray Johnstone International Limited, located at 11 West Nile Street, Glasgow,
Scotland G1 2PX, is primarily responsible for the daily management of the ESC
Strategic International Equity Fund. Organized in 1989, the firm is a
wholly-owned subsidiary of the Murray Johnstone Group, whose origin goes back to
1907.

Cincinnati Asset Management, Inc., located at 11300 Cornell Park Drive,
Cincinnati, Ohio 45242, is responsible for the daily management of the ESC
Strategic Income Fund. The firm, organized in 1989 and majority owned by its
chief executive officer, William S. Sloneker and family members, provides
services to insurance companies, pension plans, other institutional investors
and individuals.

THE ADMINISTRATOR AND DISTRIBUTOR

BISYS Fund Services, Limited Partnership ("BISYS"), whose address is 3435
Stelzer Road, Columbus, Ohio 43219-3035, serves as the Funds' administrator and
distributor.

The Statement of Additional Information ("SAI") has more detailed information
about the Adviser and other service providers.

YEAR 2000

Like other funds and business organizations around the world, the Funds could be
adversely affected if the computer systems used by the Adviser and the Funds'
other service providers do not properly process and calculate date-related
information for the year 2000 and beyond. In addition, Year 2000 issues may
adversely affect companies in which the Funds invest where, for example, such
companies incur substantial costs to address Year 2000 issues or suffer losses
caused by the failure to adequately or timely do so. These risks may be
heightened by the Funds' investments in foreign securities.

The Funds have been assured that the Adviser, the Managers, and the Funds' other
service providers (i.e., Administrator, Transfer Agent, Fund Accounting Agent,
Custodian and Distributor) have developed and are implementing clearly defined
and documented plans intended to minimize risks to services critical to the
Funds' operations associated with Year 2000 issues. Internal efforts include a
commitment to dedicate adequate staff and funding to identify and remedy Year
2000 issues, and specific actions such as inventorying software systems,
determining inventory items that may not function properly after December 31,
1999, reprogramming or replacing such systems, and retesting for Year 2000
readiness. The Funds' Adviser and service providers are likewise seeking
assurances from their respective vendors and suppliers that such entities are
addressing any Year 2000 issues, and each provider intends to engage, where
appropriate, in private and industry or "streetwide" interface testing of
systems for Year 2000 readiness.

In the event that any systems upon which the Fund is dependent are not Year 2000
ready by December 31, 1999, administrative errors and account maintenance
failures would likely occur. While the ultimate

26
<PAGE> 28

costs or consequences of incomplete or untimely resolution of Year 2000 issues
by the Adviser or the Funds' service providers cannot be accurately assessed at
this time, the Fund currently has no reason to believe that the Year 2000 plans
of the Adviser and the Funds' service providers will not be completed by
December 31, 1999, or that the anticipated costs associated with full
implementation of their plans will have a material adverse impact on either
their business operations or financial condition or those of the Funds. The
Funds and the Adviser will continue to closely monitor developments relating to
this issue, including development by the Adviser and the Funds' service
providers of contingency plans for providing back-up computer services in the
event of a systems failure or the inability of any provider to achieve Year 2000
readiness. Separately, the Adviser will monitor potential investment risk
related to Year 2000 issues.

27
<PAGE> 29

SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------

PRICING OF FUND SHARES

HOW NAV IS CALCULATED

The NAV is calculated by adding the total value of each Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by the
number of outstanding shares of the Fund:

NAV =

Total Assets - Liabilities
Number of Shares
Outstanding

1. The NAV will be calculated separately for Class A and Class D shares.

2. You can find most Funds' NAV daily in The Wall Street Journal and other
newspapers.

Per share net asset value (NAV) for each Fund is determined and its shares are
priced at the close of regular trading on the New York Stock Exchange, normally
at 4:00 p.m. Eastern time on days the Exchange is open.

Some of the Funds invest in securities that are primarily listed on foreign
exchanges and trade on weekends or other days when the Fund does not price its
shares. As a result, a Fund's NAV may change on days when shareholders will be
unable to purchase or redeem the Funds' shares.

Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is accepted by the Fund less any applicable sales
charge as noted in the section on "Distribution Arrangements/Sales Charges."
This is what is known as the offering price.

Each Fund's securities are generally valued at current market prices. If market
quotations are not available, prices will be based on fair value as determined
by methods approved by the Fund's Directors.

After the pricing of a foreign security has been established, if an event occurs
which would likely cause the value to change, the value of the foreign security
may be priced at fair value as determined in good faith by or at the direction
of the Funds' Directors.

28
<PAGE> 30
SHAREHOLDER INFORMATION

PURCHASING AND ADDING TO YOUR SHARES

You may purchase Funds through the Distributor or through banks, brokers and
other investment representatives, which may charge additional fees and may
require higher minimum investments or impose other limitations on buying and
selling shares. If you purchase shares through an investment representative,
that party is responsible for transmitting orders by close of business and may
have an earlier cut-off time for purchase and sale requests.
Consult your investment representative or institution for specific information.

<TABLE>
<CAPTION>
ACCOUNT TYPE MINIMUM MINIMUM
INITIAL INVESTMENT SUBSEQUENT INVESTMENT

<S> <C> <C>
Regular
(non-retirement) $ 1,000 $ 50
-------------------------------------------------------------------------
Retirement (IRA)* $ 500 $ 50
-------------------------------------------------------------------------
Automatic Investment
Plan $ 1,000 $ 50
-------------------------------------------------------------------------
</TABLE>

*An IRA account is subject to a $12 annual maintenance fee. No fee is charged on
subsequent IRA accounts that are opened under the same tax identification
number.

All purchases must be in U.S. dollars. A fee will be charged for any checks that
do not clear. Third-party checks are not accepted.

A Fund may waive its minimum purchase requirement and the Distributor may reject
a purchase order if it considers it in the best interest of the Fund and its
shareholders.

29
<PAGE> 31

SHAREHOLDER INFORMATION

PURCHASING AND ADDING TO YOUR SHARES - CONTINUED

INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT

BY REGULAR MAIL

If purchasing through your financial advisor or brokerage account, simply tell
your advisor or broker that you wish to purchase shares of the Funds and he or
she will take care of the necessary documentation. For all other purchases,
follow the instructions below.

Initial Investment:

1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.

2. Make check, bank draft or money order payable to "ESC Strategic Funds,
Inc." Also include the name of the appropriate Fund(s) on the check.

3. Mail to: ESC Strategic Funds, Inc., P.O. Box 182487,
Columbus, OH 43218-2487
If by overnight service, send to: ESC Strategic Funds, Inc.,
c/o BISYS Fund Services, Attn: T.A.
Operations, 3435 Stelzer Road, Columbus, OH 43219.

Subsequent Investments:
1. Use the investment slip attached to your account statement.
Or, if unavailable,

2. Provide the following information:
o Fund name
o Share class
o Amount invested
o Account name
o Account number
Include your account number on your check.

3. Mail to: ESC Strategic Funds, Inc., P.O. Box 182487, Columbus, OH 43218-2487

ELECTRONIC PURCHASES

Your bank must participate in the Automated Clearing House (ACH) and must be a
U.S. Bank. Your bank or broker may charge for this service.

Establish electronic purchase option on your account application or call
1-800-261-FUND (3863). Your account can generally be set up for electronic
purchases within 15 days.

Call 1-800-261-FUND (3863) to arrange a transfer from your bank account.

30
<PAGE> 32

SHAREHOLDER INFORMATION

PURCHASING AND ADDING TO YOUR SHARES - CONTINUED

ELECTRONIC VS. WIRE TRANSFER

Wire transfers allow financial
institutions to send funds to each
other, almost instantaneously. With
an electronic purchase or sale, the
transaction is made through the
Automated Clearing House (ACH) and
may take up to eight days to clear.
There is generally no fee for ACH
transactions.

BY WIRE TRANSFER

Please phone the Funds at 1-800-261-FUND (3863) for instructions on opening an
account or purchasing additional shares by wire transfer.

NOTE: YOUR BANK MAY CHARGE A WIRE TRANSFER FEE.

- -------------------------------------------------------------------------------
You can add to your account by using the convenient options described below. The
Funds reserve the right to change or eliminate these privileges at any time with
60 days notice.
- -------------------------------------------------------------------------------

31
<PAGE> 33

SHAREHOLDER INFORMATION

PURCHASING AND ADDING TO YOUR SHARES - CONTINUED

AUTOMATIC INVESTMENT PLAN

You can make automatic investments in the Funds from your bank account, through
payroll deduction or from your federal employment, Social Security or other
regular government checks. Automatic investments can be as little as $50, once
you've invested the $1,000 minimum required to open the account.

To invest regularly from your bank account:

o Complete the Automatic Investment Plan portion on your Account
Application. Make sure you note:
o Your bank name, address and account number
o The amount you wish to invest automatically (minimum $50)
o How often you want to invest (every month, 4 times a year, twice a
year or once a year)
o Attach a voided personal check.

To invest regularly from your paycheck or government check:
Call 1-800-261-FUND (3863) for an enrollment form.

32
<PAGE> 34

SHAREHOLDER INFORMATION

SELLING YOUR SHARES

You may sell your shares at any time. Your sales price will be the next NAV
after your sell order is received by the Fund, its transfer agent, or your
investment representative. Normally you will receive your proceeds within a week
after your request is received. See section on "General Policies on Selling
Shares" below.

WITHDRAWING MONEY FROM YOUR FUND INVESTMENT

As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is also known as redeeming shares or a
redemption of shares.

INSTRUCTIONS FOR SELLING SHARES

If selling your shares through your financial adviser or broker, ask him or her
for redemption procedures. Your adviser and/or broker may have transaction
minimums and/or transaction times which will affect your redemption. For all
other sales transactions, follow the instructions below.

<TABLE>
<S> <C>
By telephone 1. Call 1-800-261-FUND (3863) with instructions as to how you
(unless you have declined wish to receive your funds (mail, wire, electronic transfer).
telephone sales privileges) (See "General Policies on Selling Shares--Verifying Telephone
Redemptions" below)
- -------------------------------------- ---------------------------------------------------------------------
By mail 1. Call 1-800-261-FUND (3863) to request redemption forms or
write a letter of instruction indicating:
o your Fund and account number
o amount you wish to redeem
o address where your check should be sent
o account owner signature

2. Mail to:
ESC Strategic Funds, Inc.
P.O. Box 182487
Columbus, OH 43218-2487
- -------------------------------------- ---------------------------------------------------------------------
By overnight service See instruction 1 above.
(See "General Policies on 2. Send to
Selling Shares--Redemptions in ESC Strategic Funds, Inc.
Writing Required" below) co/BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer Road
Columbus, OH 43219
</TABLE>

33
<PAGE> 35

SHAREHOLDER INFORMATION

SELLING YOUR SHARES - CONTINUED

Wire transfer
You must indicate this option on
your application.

Call 1-800-261-FUND (3863) to request a wire transfer.

If you call by 4 p.m. Eastern time, your payment will normally be wired to your
bank on the next business day.

The Fund may charge a wire transfer fee. Note: Your financial institution may
also charge a separate fee.

Electronic Redemptions

Call 1-800-261-FUND (3863) to request an electronic redemption.

Your bank must participate in
the Automated Clearing House
(ACH) and must be a U.S. bank.

If you call by 4 p.m. Eastern time, the NAV of your shares
will normally be determined on the same day and the proceeds
credited within 8 days.

Your bank may charge for this service.

SYSTEMATIC WITHDRAWAL PLAN

You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The maximum annual payment is 12% of the account
value at the time of the election. A sufficient number of shares to make the
scheduled redemption will normally be redeemed on the date you select. Depending
on the size of the payment requested and fluctuation in the net asset value, if
any, of the shares redeemed, redemptions for the purpose of making such payments
may reduce or even exhaust the account. You may request that these payments be
sent to a predesignated bank or another designated party. To activate this
feature:

o Make sure you've checked the appropriate box on the Account Application.
Or call 1-800- 261-FUND (3863).
o Include a voided personal check.
o Your account must have a value of $12,000 or more to start withdrawals.
If the value of your account falls below $500 due to withdrawals, you may
be asked to add sufficient funds to bring the account back to $500, or the
Fund may close your account and mail the proceeds to you.

34
<PAGE> 36

SHAREHOLDER INFORMATION

SELLING YOUR SHARES - CONTINUED

GENERAL POLICIES ON SELLING SHARES

Shareholders may redeem their shares, in whole or in part, on any business day.
Shares will be redeemed at the net asset value next determined after a
redemption request in good order has been received by the Funds.

REDEMPTION METHODS

THROUGH AN AUTHORIZED BROKER, INVESTMENT ADVISER OR SERVICE ORGANIZATIONS
You should contact your broker, investment adviser or Service Organization and
provide instructions to redeem shares. These organizations are responsible for
the prompt transmission of orders. The broker will contact the Funds and place a
redemption trade. The broker may charge a fee for this service.

BY MAIL

Shareholders may redeem shares by sending a letter directly to the Funds. To be
accepted, a letter requesting redemption must include:

a) the Fund name, class of shares and account
registration from which shares are being redeemed;
b) the account number;
c) the amount to be redeemed
d) the signatures of all registered owners; and
e) if the redemption request is to be sent to someone other than the
registered address, a signature guarantee is necessary by any
eligible guarantor institution including members of national
securities exchanges, commercial banks or trust and savings
associations.

BY TELEPHONE

Shareholders may redeem shares by calling the Funds at 1-800-261-FUND (3863). Be
prepared to give the telephone representative the following information:

a) the account number, social security number and account
registration;
b) the name of the class and the Fund from which shares are being
redeemed; and
c) the amount to be redeemed.

Telephone redemptions are available only if the shareholder so indicates by
checking the "yes" box on the Purchase Application or on the Optional Services
Form. The Funds employ procedures, including recording telephone calls, testing
a caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine, and to discourage fraud. To the extent that a Fund does
not follow such procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. A Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine. Telephone redemption and telephone exchange will be suspended for a
period of 10 days following a telephonic address change.

35
<PAGE> 37

SHAREHOLDER INFORMATION

SELLING YOUR SHARES - CONTINUED

BY WIRE
Shareholders may redeem shares by contacting the Funds by mail or telephone and
instructing the Funds to send a wire transmission to the shareholder's bank.

The shareholder's instructions should include:

a) the account number, social security number and account
registration;
b) the name of the class (if applicable) and the Fund from which
shares are being redeemed; and
c) the amount to be redeemed.

Wire redemptions can be made only if the "yes" box has been checked on the
shareholder's Purchase Application, and a copy is attached of a void check on an
account where proceeds are to be wired. The bank may charge a fee for receiving
a wire payment on behalf of its customer.

SIGNATURE GUARANTEES
To protect shareholder accounts, the Funds and the Administrator from fraud,
signature guarantees are required to enable the Funds to verify the identity of
the person who has authorized a redemption from an account. Signature guarantees
are required for (1) redemptions where the proceeds are to be sent to someone
other than the registered shareholder(s) and the registered address, (2) a
redemption of $25,000 or more, and (3) share transfer requests. Signature
guarantees may be obtained from certain eligible financial institutions,
including but not limited to, the following: banks, trust companies, credit
unions, securities brokers and dealers, savings and loan associations and
participants in the Securities and Transfer Association Medallion Program
("STAMP"), the Stock Exchange Medallion Program ("SEMP") or the New York Stock
Exchange Medallion Signature Program ("MSP"). Shareholders may contact the Funds
at 1-800-261-FUND (3863) for further details.

36
<PAGE> 38

SHAREHOLDER INFORMATION

SELLING YOUR SHARES - CONTINUED

REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, you cannot redeem any
portion of it until the Transfer Agent is satisfied that the check has cleared
(which may require up to 10 business days). You can avoid this delay by
purchasing shares through wire transfers of Federal funds.

REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.

REDEMPTION IN KIND
All redemptions of shares of the Funds shall be made in cash, except that the
commitment to redeem shares in cash extends only to redemption requests made by
each shareholder of a Fund during any 90-day period of up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of such
period. This commitment is irrevocable without the prior approval of the SEC. In
the case of redemption requests by shareholders in excess of such amounts, the
Board of Directors reserves the right to have a Fund make payment, in whole or
in part, in readily marketable securities or other assets, in case of an
emergency or any time a cash distribution would impair the liquidity of the Fund
to the detriment of the existing shareholders. In this event, the securities
would be valued generally in the same manner as the securities of that Fund are
valued generally. If the recipient were to sell such securities, he or she would
incur brokerage charges.

The Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(for example, more than 1% of the Fund's net assets). If the Fund deems it
advisable for the benefit of all shareholders, redemption in kind will consist
of securities equal in market value to your shares. When you convert these
securities to cash, you will pay brokerage charges.

REDEMPTION OF SMALL ACCOUNTS
Due to the disproportionately higher cost of servicing small accounts, the Funds
reserve the right to redeem, on not less than 30 days' notice, an account in a
Fund that has been reduced by a shareholder (not by market action) to $500 or
less. However, if during the 30-day notice period the shareholder purchases
sufficient shares to bring the value of the account above $500, the account will
not be redeemed.

37
<PAGE> 39

SHAREHOLDER INFORMATION

DISTRIBUTION ARRANGEMENTS/SALES CHARGES

This section describes the sales charges and fees you will pay as an investor in
different share classes offered by the Fund and ways to qualify for reduced
sales charges.

<TABLE>
<CAPTION>
- -------------------------------------- ------------------------------------ -----------------------------------
CLASS A CLASS D
- -------------------------------------- ------------------------------------ -----------------------------------
<S> <C> <C>
Sales Charge (Load) Higher front-end sales Lower front-end sales
charge than Class D; charge than Class A.
reduced sales charges
available .
- -------------------------------------- ------------------------------------ -----------------------------------
Distribution and Service Subject to annual Subject to annual
(12b-1) Fee distribution and distribution and
shareholder servicing fees shareholder servicing fees
of up to 0.25% of the of up to 0.75% of the
Fund's assets. Fund's assets.
- -------------------------------------- ------------------------------------ -----------------------------------
Fund Expenses Lower annual expenses than Higher annual expenses than
Class D shares. Class A shares.
- -------------------------------------- ------------------------------------ -----------------------------------
</TABLE>

38
<PAGE> 40

SHAREHOLDER INFORMATION

DISTRIBUTION ARRANGEMENTS/SALES CHARGES - CONTINUED

CALCULATION OF SALES CHARGES

Class A Shares and Class D Shares

Class A and Class D shares are each sold at their public offering price. This
price includes the initial sales charge. Therefore, part of the money you invest
will be used to pay the sales charge. The remainder is invested in Fund shares.
The sales charge decreases with larger purchases. There is no sales charge on
reinvested dividends and distributions.

The current sales charge rates are as follows:

FOR CLASS A SHARES

<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
- ----------------------------------------- ----------------------- ----------------------
<S> <C> <C>
Up to $100,000 4.50% 4.71%
- ----------------------------------------- ----------------------- ----------------------
$100,000 up to $249,999 3.50% 3.63%
- ----------------------------------------- ----------------------- ----------------------
$250,000 up to $499,999 2.50% 2.56%
- ----------------------------------------- ----------------------- ----------------------
$500,000 up to $999,999 2.00% 2.04%
- ----------------------------------------- ----------------------- ----------------------
$1,000,000 and above(1) None None
- ----------------------------------------- ----------------------- ----------------------
</TABLE>

FOR CLASS D SHARES

- -----------------------
1 There is no initial sales charge on purchases of $1 million or more. However,
a contingent deferred sales charge (CDSC) of up to 1.00% of the purchase price
will be charged to the shareholder if shares are redeemed in the first year
after purchase. This charge will be based on the lower of your cost for the
shares or their NAV at the time of redemption. There will be no CDSC on
reinvested distributions.

39
<PAGE> 41

SHAREHOLDER INFORMATION

DISTRIBUTION ARRANGEMENTS/SALES CHARGES - CONTINUED

SALES CHARGE REDUCTIONS
Reduced sales charges for Class A shares are available to shareholders with
investments of $100,000 or more. In addition, you may qualify for reduced sales
charges under the following circumstances.

o Letter of Intent. You inform the Fund in writing that you intend to
purchase enough shares over a 13-month period to qualify for a reduced
sales charge. You must include a minimum of 5% of the total amount you
intend to purchase with your letter of intent.

o Rights of Accumulation. When the value of shares you already own plus
the amount you intend to invest reaches the amount needed to qualify for
reduced sales charges, your added investment will qualify for the reduced
sales charge.

o Combination Privilege. Combine accounts of multiple Funds or accounts
of immediate family household members (spouse and children under 21) to
achieve reduced sales charges.

SALES CHARGE WAIVERS

CLASS A SHARES

The following qualify for waivers of sales charges:

o Shares purchased by investment representatives through asset allocation
or fee-based investment products or accounts.

o Shares purchased with the proceeds from redemptions from another mutual
fund complex that were originally purchased with a front-end sales charge.

o Shares purchased for trust or other advisory accounts established with
the Adviser or its affiliates or a Manager.

o Shares purchased by directors, officers, employees, and family members
of the Funds, the Adviser, a Manager, or BISYS, and their affiliates and
any organization that provides services to the Funds.

o Shares purchased by representatives of selling brokers and members of
their immediate families.

o Shares purchased by bank trust departments, acting on behalf of one or
more clients, with shares having an aggregate value equal to or exceeding
$200,000.

o Shares purchased with proceeds of a distribution from a trust,
investment management or other fiduciary account management by the Adviser
or a Manager.

o Shares purchased for retirement accounts or plans (or monies from
retirement accounts or plans) for which there is a written service
agreement between the Funds and the Plan Sponsor, so long as such shares
are purchased through BISYS.

40
<PAGE> 42

SHAREHOLDER INFORMATION

REINSTATEMENT PRIVILEGE

If you have sold Class A or D shares and decide to reinvest in the Fund within a
30 day period, you will not be charged the applicable sales load on amounts up
to the value of the shares you sold. You must reinvest in the same Fund, same
class and the same account. Please note that a redemption is a taxable
transaction and gain may be recognized for Federal income tax purposes even if
the reinstatement privilege is exercised.

DISTRIBUTION AND SERVICE (12B-1) FEES

12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and distribution
of the Funds' shares and/or for providing shareholder services. 12b-1 fees are
paid from Fund assets on an ongoing basis, and will increase the cost of your
investment. Class A shares and Class D shares pay 12b-1 fees of up to 0.25% and
0.75%, respectively, of the average daily net assets of a Fund.

Long-term shareholders may pay indirectly more than the equivalent of the
maximum permitted front-end sales charge due to the recurring nature of 12b-1
distribution and service fees.

41
<PAGE> 43

SHAREHOLDER INFORMATION

EXCHANGING YOUR SHARES

You can exchange your shares in one Fund for shares of the same class of another
ESC Strategic Fund, usually without paying additional sales charges (see "Notes"
below). No transaction fees are charged for exchanges.

The minimum amount for an initial exchange is $2,000. Exchanges from one Fund to
another are taxable.

INSTRUCTIONS FOR EXCHANGING SHARES

Exchanges may be made by sending a written request to ESC Strategic Funds, Inc.,
P.O. Box 182487, Columbus OH 43218-2487, or by calling 1-800-261-FUND (3863).
Please provide the following information:
o Your name and telephone number
o The exact name on your account and account number
o Taxpayer identification number (usually your Social Security number)
o Dollar value or number of shares to be exchanged o The name of the
Fund from which the exchange is to be made
o The name of the Fund into which the exchange is being made.
o The signatures of all registered owners or authorized parties.

See "Selling your Shares" for important information about telephone
transactions.

To prevent disruption in the management of the Funds, due to market timing
strategies, exchange activity may be limited to four substantive exchanges
during any calendar year.

- -------------------------------------------------------------------------------

AUTOMATIC EXCHANGES

You can use the Funds' Automatic Exchange feature to purchase shares of the
Funds at regular intervals through regular, automatic redemptions. To
participate in the Automatic Exchange:

o Complete the appropriate section of the Account Application.
o Make a minimum initial purchase of $5,000 and maintain a minimum account
balance of $1,000.
o Make monthly, quarterly, semi-annual or annual exchanges of a stated amount
of no less than $100.

To change the Automatic Exchange instructions or to discontinue the feature, you
must send a written request to ESC Strategic Funds, Inc., P.O. Box 182487,
Columbus, Ohio 43218-2487.

NOTES ON EXCHANGES

You may not exchange shares of a class of another Fund that is not qualified for
sale in the state of the your residence.

The registration and tax identification numbers of the two accounts must be
identical.

The Exchange Privilege (including automatic exchanges) may be changed or
eliminated at any time without notice to shareholders.

Be sure to read the Prospectus carefully of any Fund into which you wish to
exchange shares.

42
<PAGE> 44

SHAREHOLDER INFORMATION

DIVIDENDS, DISTRIBUTIONS AND TAXES

Any income a Fund receives is paid out, less expenses, to its shareholders as
dividends. Income dividends on the ESC Strategic Appreciation Fund, ESC
Strategic International Equity Fund, ESC Strategic Small Cap Fund and ESC
Strategic Small Cap II Fund are at least paid annually. Dividends on the ESC
Strategic Income Fund are paid monthly. Capital gains for all Funds are
distributed at least annually.

All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Dividends are higher for Class A shares than for Class D, because Class A shares
have lower distribution expenses.

An exchange of shares is considered a sale, and any related gains may be subject
to applicable taxes.

Dividends are taxable as ordinary income. Taxes on capital gains by the Funds
will vary with the length of time the Fund has held the security - not how long
you have invested in the Fund.

Some dividends are taxable in the year in which they are declared, even if they
are paid and/or appear on your account statement the following year. Dividends
and distributions are treated in the same manner for federal income tax purposes
whether you receive them in cash or in additional shares.

You will be notified in January each year about the federal tax status of
distributions made by a Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.

Foreign shareholders may be subject to special withholding requirements. There
is a penalty on certain pre-retirement distributions from retirement accounts.
Consult your tax adviser about the federal, state and local tax consequences in
your particular circumstances.

Avoid 31% Tax Withholding

The Funds are required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their taxpayer identification number in compliance with IRS rules. To
avoid this, make sure you provide your correct Tax Identification Number (Social
Security Number for most investors) on your account application.

DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU'VE OWNED
YOUR SHARES. THEREFORE, IF YOU INVEST SHORTLY BEFORE THE DISTRIBUTION DATE, SOME
OF YOUR INVESTMENT WILL BE RETURNED TO YOU IN THE FORM OF A TAXABLE
DISTRIBUTION.

43
<PAGE> 45

FINANCIAL HIGHLIGHTS

THE FINANCIAL HIGHLIGHTS TABLE IS INTENDED TO HELP YOU UNDERSTAND THE FUNDS'
FINANCIAL PERFORMANCE FOR THE PAST 5 YEARS [OR, IF SHORTER, THE PERIOD OF THE
FUNDS' OPERATIONS]. CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE
FUND SHARE. THE TOTAL RETURNS IN THE TABLE REPRESENT THE RATE THAT AN INVESTOR
WOULD HAVE EARNED [OR LOST] ON AN INVESTMENT IN THE FUNDS (ASSUMING REINVESTMENT
OF ALL DIVIDENDS AND DISTRIBUTIONS). THIS INFORMATION HAS BEEN AUDITED BY
PRICEWATERHOUSECOOPERS LLP, WHOSE REPORT, ALONG WITH THE FUND'S FINANCIAL
STATEMENTS, ARE INCLUDED IN THE ANNUAL REPORT, WHICH IS AVAILABLE UPON REQUEST.

INSERT PAST 5 YEARS'
FINANCIAL HIGHLIGHTS
FROM ANNUAL REPORT.

APPRECIATION FUND FINANCIAL HIGHLIGHTS

INTERNATIONAL EQUITY FUND FINANCIAL HIGHLIGHTS

SMALL CAP FUND FINANCIAL HIGHLIGHTS

SMALL CAP II FUND FINANCIAL HIGHLIGHTS

INCOME FUND FINANCIAL HIGHLIGHTS

44
<PAGE> 46

For more information about the Funds, the following documents are available free
upon request:

ANNUAL/SEMI-ANNUAL REPORTS (REPORTS):
The Funds' annual and semi-annual reports to shareholders contain additional
information on the Funds' investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected a Fund's performance during its last fiscal year.

STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds, including its operations and investment policies.
It is incorporated by reference and is legally considered a part of this
prospectus.

YOU CAN GET FREE COPIES OF ANNUAL/SEMI-ANNUAL REPORTS AND THE SAI OF THE ESC
STRATEGIC FUNDS, OR REQUEST OTHER INFORMATION AND DISCUSS YOUR QUESTIONS ABOUT
THE FUNDS BY CONTACTING A BROKER THAT SELLS THE FUNDS. OR CONTACT THE FUNDS AT:

ESC STRATEGIC FUNDS, INC,
3435 STELZER ROAD
COLUMBUS, OHIO 43219
TELEPHONE: 1-800-261-FUND (3863)

You can review the Funds' reports and SAI at the Public Reference Room of the
Securities and Exchange Commission. You can get copies:

o For a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
o Free from the Commission's Website at http://www.sec.gov.

Investment Company Act file no. 811-8166.

45
<PAGE> 47
ESC STRATEGIC FUNDS, INC.
(THE "COMPANY")
3435 STELZER ROAD
COLUMBUS, OHIO 43219-8001
GENERAL AND ACCOUNT INFORMATION: (800) 261-FUND(3863)

SUNTRUST EQUITABLE SECURITIES --
INVESTMENT ADVISER

BISYS FUND SERVICES--ADMINISTRATOR AND DISTRIBUTOR

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information ("SAI") describes the five funds
(the "Funds") advised by SunTrust Equitable Securities (the "Adviser"). The
Funds are:

- ESC Strategic Appreciation Fund
- ESC Strategic International Equity Fund
- ESC Strategic Small Cap Fund*
- ESC Strategic Small Cap II Fund**
- ESC Strategic Income Fund

Each Fund has distinct investment objectives and policies and several of
the Funds have one or more Managers. See "Management." Shares of the Funds are
sold to the public by the Distributor as an investment vehicle for individuals,
institutions, corporations and fiduciaries, including customers of the Adviser
or its affiliates.

The Company is offering an indefinite number of shares of each class of
each Fund.

This SAI is not a prospectus and is authorized for distribution only when
preceded or accompanied by the prospectus for the Funds dated July 29, 1999, as
supplemented from time to time (the "Prospectus"). This SAI contains additional
and more detailed information than that set forth in the Prospectus and should
be read in conjunction with the Prospectus. The Prospectus may be obtained
without charge by writing or calling the Funds at the address and information
numbers printed above.

July 29, 1999.

- ----------

* Currently, shares of the Small Cap Fund are available only to existing
shareholders of that Fund.
** Formerly, ESC Strategic Growth Fund

<PAGE> 48
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INVESTMENT POLICIES 4
Bank Obligations 4
Commercial Paper 4
Corporate Debt Securities 4
Repurchase Agreements 4
Variable and Floating Rate Demand and Master Demand Notes 5
Inverse Floaters 5
Loans of Portfolio Securities 5
Foreign Securities 5
Special Considerations Concerning Emerging Markets 7
Forward Foreign Currency Exchange Contracts 7
Lower Rated and Non-Investment Grade Securities and Sovereign Debt Obligations 7
Municipal Lease Obligations 11
Short Sales 11
Risks of Illiquid Securities 11
Forward Commitments and When-Issued Securities 11
Currency Risk 12
Foreign Currency Options 12
Interest Rate Futures Contracts 12
Stock Index Futures Contracts 13
Option Writing and Purchasing 13
Options on Futures Contracts 14
Risks of Options Transactions 15
Risks of Futures and Related Options Transactions 15
Limitations on Futures Contracts and Options on Futures Contracts 16
Brady Bonds 16
Warrants and Rights 17
Investment Companies and Investment Funds 17
Mortgage-Related Securities 17
Parallel Pay Securities; PAC Bonds 19
Mortgage-Backed Security Rolls 20
Other Asset-Backed Securities 20
Structured Investments 21
Structured Notes 21
Swaps 22
Zero Coupon Securities and Deferred Interest Obligations 22
Custodial Receipts 23
Loan Participations 23
Pay-In-Kind Bonds 24
Trade Claims 24
Equity-Linked Securities 24
Arbitrage 26
Foreign Index-Linked Instruments 26
Venture Capital 26
Leveraged Buyouts 26
Non-Publicly Traded Securities; Rule 144A Securities 27
INVESTMENT RESTRICTIONS 28
</TABLE>

<PAGE> 49

<TABLE>
<S> <C>
MANAGEMENT 29
Directors and Officers 29
Investment Adviser 32
The Managers 32
Distribution of Fund Shares 36
Administrative Services 37
Service Organizations 38
DETERMINATION OF NET ASSET VALUE 39
PORTFOLIO TRANSACTIONS 39
Portfolio Turnover 40
TAXATION 40
OTHER INFORMATION 47
Capitalization 47
Principal Shareholders 48
Voting Rights 51
Custodian, Transfer Agent and Dividend Disbursing Agent 51
Yield and Performance Information 52
Independent Accountants 53
Counsel 53
Registration Statement 53
FINANCIAL STATEMENTS 54
</TABLE>

<PAGE> 50
INVESTMENT POLICIES

The Prospectus discusses the investment objectives of the Funds and the
policies to be employed to achieve those objectives. This section contains
supplemental information concerning certain types of securities and other
instruments in which the Funds may invest, the investment policies and portfolio
strategies that the Funds may utilize, and certain risks attendant to such
investments, policies and strategies.

Bank Obligations (All Funds). These obligations include negotiable
certificates of deposit and bankers' acceptances. A description of the banks the
obligations of which the Funds may purchase are set forth in the Prospectus. A
certificate of deposit is a short-term, interest-bearing negotiable certificate
issued by a commercial bank against funds deposited in the bank. A bankers'
acceptance is a short-term draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction. The borrower
is liable for payment as is the bank, which unconditionally guarantees to pay
the draft at its face amount on the maturity date.

Commercial Paper (All Funds). Commercial paper includes short-term
unsecured promissory notes, variable rate demand notes and variable rate master
demand notes issued by domestic and foreign bank holding companies, corporations
and financial institutions and similar taxable instruments issued by government
agencies and instrumentalities. All commercial paper purchased by a Fund must
meet the minimum rating criteria for that Fund.

Corporate Debt Securities (All Funds). The Funds may invest in U.S. dollar-
or foreign currency-denominated obligations of foreign issuers. Fund investments
in these securities are limited to corporate debt securities (corporate bonds,
debentures, notes and similar corporate debt instruments) which meet the rating
criteria established for each Fund. Unlike a nonconvertible corporate
obligation, a convertible corporate obligation may be converted into or
exchanged for a prescribed amount of common stock or other equity security of
the same or different issuer within a particular period of time at a specified
price or formula. Convertible securities, are senior to common stock in an
issuer's capital structure and generally entail less risk than the issuer's
common stock, although the extent that the risk is reduced depends in large
measure upon a variety of factors, including the creditworthiness of the issuer
and its overall capital structure.

After purchase by a Fund, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Fund. Neither
event will require a sale of such security by the Fund. However, a Fund's
Manager will consider such event in its determination of whether the Fund should
continue to hold the security. To the extent the ratings given by Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P") or
another rating agency may change as a result of changes in such organizations or
their rating systems, the Funds will attempt to use comparable ratings as
standards for investments in accordance with the investment policies contained
in the Prospectus and in this SAI.

Repurchase Agreements (All Funds). The Funds may invest in securities
subject to repurchase agreements with U.S. banks or broker-dealers that, in the
opinion of the Manager, present minimal credit risks in accordance with
guidelines adopted by the Board of Directors. Such agreements may be considered
to be loans by the Funds for purposes of the Investment Company Act of 1940, as
amended (the "1940 Act"). A repurchase agreement is a transaction in which the
seller of a security commits itself at the time of the sale to repurchase that
security from the buyer at a mutually agreed-upon time and price. The repurchase
price exceeds the sale price, reflecting an agreed-upon interest rate effective
for the period the buyer owns the security subject to repurchase. The
agreed-upon rate is unrelated to the interest rate on that security. A Manager
will monitor the value of the underlying security at the time the transaction is
entered into and at all times during the term of the repurchase agreement to
insure that the value of the security always equals or exceeds the repurchase
price. In the event of default by the seller under the repurchase agreement, the
Funds may have problems in exercising their rights to the underlying securities
and may incur costs and experience time delays in connection with the
disposition of such securities.

4
<PAGE> 51

Variable and Floating Rate Demand and Master Demand Notes (All Funds). The
Funds may, from time to time, buy variable rate demand notes issued by
corporations, bank holding companies and financial institutions and similar
instruments issued by government agencies and instrumentalities. These
securities will typically have a maturity in the 5 to 20 year range but carry
with them the right of the holder to put the securities to a remarketing agent
or other entity on short notice, typically seven days or less. The obligation of
the issuer of the put to repurchase the securities is backed up by a letter of
credit or other obligation issued by a financial institution. The purchase price
is ordinarily par plus accrued and unpaid interest. Ordinarily, the remarketing
agent will adjust the interest rate every seven days (or at other intervals
corresponding to the notice period for the put), in order to maintain the
interest rate at the prevailing rate for securities with a seven-day maturity.

The Funds may also buy variable rate master demand notes. The terms of
these obligations permit the investment of fluctuating amounts by the Funds at
varying rates of interest pursuant to direct arrangements between a Fund, as
lender, and the borrower. They permit weekly, and in some instances, daily,
changes in the amounts borrowed. The Funds have the right to increase the amount
under the note at any time up to the full amount provided by the note agreement,
or to decrease the amount, and the borrower may prepay up to the full amount of
the note without penalty. The notes may or may not be backed by bank letters of
credit. Because the notes are direct lending arrangements between the lender and
the borrower, it is not generally contemplated that they will be traded, and
there is no secondary market for them, although they are redeemable (and thus,
immediately repayable by the borrower) at principal amount, plus accrued
interest, at any time. The Funds have no limitations on the type of issuer from
whom the notes will be purchased. However, in connection with such purchase and
on an ongoing basis, a Manager will consider the earning power, cash flow and
other liquidity ratios of the issuer, and its ability to pay principal and
interest on demand, including a situation in which all holders of such notes
make demand simultaneously. While master demand notes, as such, are not
typically rated by credit rating agencies, if not so rated, the Funds may, under
their minimum rating standards, invest in them only if at the time of an
investment the issuer meets the criteria set forth in the Prospectus for other
comparable debt obligations.

Floating rate demand and master demand notes are similar to variable rate
instruments except that their interest rates vary with a designated market index
or market rate, such as the coupon equivalent of the U.S. Treasury bill rate.

Inverse Floaters. Inverse floating rate obligations are fixed-income
securities, that have coupon rates that vary inversely at a multiple of a
designated floating rate, such as LIBOR (London Inter-Bank Offered Rate). Any
rise in the reference rate of an inverse floater (as a consequence of an
increase in interest rates) causes a drop in the coupon rate while any drop in
the reference rate of an inverse floater causes an increase in the coupon rate.
Inverse floaters may exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity.

Loans of Portfolio Securities (All Funds). The Funds may lend their
portfolio securities to brokers, dealers and financial institutions, provided:
(1) the loan is secured continuously by collateral consisting of U.S. Government
securities or cash or letters of credit maintained on a daily mark-to-market
basis in an amount at least equal to the current market value of the securities
loaned; (2) the Funds may at any time call the loan and obtain the return of the
securities loaned within five business days; (3) the Funds will receive any
interest or dividends paid on the loaned securities; and (4) the aggregate
market value of securities loaned will not at any time exceed one-third of the
total assets of a particular Fund.

The Funds will earn income for lending their securities because cash
collateral pursuant to these loans will be invested in short-term money market
instruments. In connection with lending securities, the Funds may pay reasonable
finders, administrative and custodial fees. Loans of securities involve a risk
that the borrower may fail to return the securities or may fail to provide
additional collateral.

Foreign Securities (All Funds). The Funds may invest directly in both sponsored
and unsponsored U.S. dollar- or foreign currency-denominated corporate
securities (including preferred or preference stock),

<PAGE> 52

certificates of deposit and bankers' acceptances issued by foreign banks, U.S.
dollar-denominated bonds sold in the United States ("Yankee bonds"), other bonds
denominated in U.S. dollars or other currencies and sold to investors outside
the United States ("Eurobonds"), and obligations of foreign governments or their
subdivisions, agencies and instrumentalities, international agencies and
supranational entities.

Investing in the securities of issuers in any foreign country, including
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), and
similar instruments, involves special risks and considerations not typically
associated with investing in U.S. companies. These include differences in
accounting, auditing and financial reporting standards; generally higher
commission rates on foreign portfolio transactions; the possibility of
nationalization, expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations (which may include suspension of the
ability to transfer currency from a country); and political instability which
could affect U.S. investments in foreign countries. Additionally, foreign
securities and dividends and interest payable on those securities may be subject
to foreign taxes, including taxes withheld from payments on those securities.
Foreign securities often trade with less frequency and volume than domestic
securities and, therefore, may exhibit greater price volatility and less
liquidity. Additional costs associated with an investment in foreign securities
may include higher custodial fees than apply to domestic custodial arrangements
and transaction costs of foreign currency conversions. Changes in foreign
exchange rates also will affect the value of securities denominated or quoted in
currencies other than the U.S. dollar. A Fund's objectives may be affected
either unfavorably or favorably by fluctuations in the relative rates of
exchange between the currencies of different nations, by exchange control
regulations and by indigenous economic and political developments. A decline in
the value of any particular currency against the U.S. dollar will cause a
decline in the U.S. dollar value of a Fund's holdings of securities denominated
in such currency, and related ADRs and EDRs, and, therefore, will cause an
overall decline in the Fund's net asset value and any net investment income and
capital gains to be distributed in U.S. dollars to shareholders of the Fund. The
rate of exchange between the U.S. dollar and other currencies is determined by
several factors including the supply and demand for particular currencies,
central bank efforts to support particular currencies, the movement of interest
rates, the pace of business activity in certain other countries and the United
States, and other economic and financial conditions affecting the world economy.

Although the Funds value their assets daily in terms of U.S. dollars, the
Funds do not intend to convert their holdings of foreign currencies into U.S.
dollars on a daily basis, and a Fund may from time to time have foreign currency
holdings pending investment. When a Fund converts its foreign currency holdings,
it will incur costs. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference ("spread") between
the prices at which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to a Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to sell that currency
to the dealer.

Through a Fund's flexible policies, Managers endeavor to avoid unfavorable
consequences and to take advantage of favorable developments in particular
nations where, from time to time, it places a Fund's investments.

Changes in foreign exchange rates will affect the value of securities
denominated or quoted in currencies other than the U.S.

<PAGE> 53

dollar. Since certain Funds may invest in securities denominated in currencies
other than the U.S. dollar, and since those Funds may, for various periods
pending investment for non speculative purposes, hold funds in bank deposits or
other money market investments denominated in foreign currencies, a Fund may be
affected favorably or unfavorably by exchange control regulations or changes in
the exchange rate between such currencies and the dollar. Changes in foreign
currency exchange rates will influence values of securities in the Fund's
portfolio, from the perspective of U.S. investors. Changes in foreign currency
exchange rates may also affect the value of dividends and interest earned, gains
and losses realized on the sale of securities, and net investment income and
gains, if any, to be distributed to shareholders by a Fund. The rate of exchange
between the U.S. dollar and other currencies is determined by the forces of
supply and demand in the foreign exchange markets. These forces are affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors.

Special Considerations Concerning Emerging Markets: Investment in emerging
market countries presents risk in greater degree than, and in addition to, those
presented by investment in foreign issuers in general. A number of emerging
market countries restrict, to varying degrees, foreign investment in stocks.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some emerging
market countries. A number of the currencies of developing countries have
experienced significant declines against the U.S. dollar in recent years, and
devaluation may occur subsequent to investments in these currencies by the Fund.
Inflation and rapid fluctuations in inflation rates have had and may continue to
have negative effects on the economies and securities markets of certain
emerging market countries. Many of the emerging securities markets are
relatively small, have low trading volumes, suffer periods of relative
illiquidity, and are characterized by significant price volatility. There is a
risk in emerging market countries that a future economic or political crisis
could lead to price controls, forced mergers of companies, expropriation or
confiscatory taxation, seizure, nationalization, or creation of government
monopolies, any of which may have a detrimental effect on the Funds'
investments.

Forward Foreign Currency Exchange Contracts (All Funds). Those Funds that
purchase foreign currency-denominated securities may enter into forward foreign
currency exchange contracts in order to protect against uncertainty in the level
of future foreign exchange rates. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
entered into in the interbank market conducted between currency traders (usually
large commercial banks) and their customers. Forward foreign currency exchange
contracts may be bought or sold to protect a Fund against a possible loss
resulting from an adverse change in the relationship between foreign currencies
and the U.S. dollar, or between foreign currencies. Although such contracts are
intended to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time, they tend to limit any potential gain which
might result should the value of such currency increase. The precise matching of
forward contracts and the value of the securities involved will not generally be
possible since the future value of the securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and the date it matures.
Projection of short-term currency market movements is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
There can be no assurance that new forward contracts or off-sets will always be
available to a Fund.

Lower Rated and Non-Investment Grade Securities and Sovereign Debt
Obligations (ESC Strategic Income Fund). ESC Strategic Income Fund may invest in
securities rated Baa by Moody's and/or BBB by S&P if, in the opinion of the
Manager(s), the yield is commensurate with the risk involved. These securities
(and securities deemed of comparable quality by a Manager) have speculative
characteristics. A description of the characteristics of ratings of securities
in which a Fund may invest is attached as an Appendix.

<PAGE> 54

Securities rated below investment grade and comparable unrated securities
(commonly known as "junk bonds") offer yields that fluctuate over time, but
generally are superior to the yields offered by higher rated securities.
However, securities rated below investment grade also involve greater risks than
higher rated securities. Under rating agency guidelines, medium, and lower-rated
securities and comparable unrated securities will likely have some quality and
protective characteristics that are outweighed by large uncertainties or major
risk exposures to adverse conditions. Certain of the debt securities in which
ESC Strategic Income Fund may invest may have, or be considered comparable to
securities having, the lowest ratings for non-subordinated debt instruments
assigned by Moody's, S&P or other NRSROs (i.e., rated C by Moody's or CCC or
lower by S&P). These securities are considered to have extremely poor prospects
of ever attaining any real investment standing, to have a current identifiable
vulnerability to default, to be unlikely to have the capacity to pay interest
and repay principal when due in the event of adverse business, financial or
economic conditions, and/or to be in default or not current in the payment of
interest or principal. Such securities are considered speculative with respect
to the issuer's capacity to pay interest and repay principal in accordance with
the terms of the obligations. Accordingly, it is possible that these types of
factors could, in certain instances, reduce the value of securities held by the
Fund with a commensurate effect on the value of its respective shares.
Therefore, an investment in this Fund should not be considered as a complete
investment program for all investors.

The secondary markets for high yield corporate and sovereign debt
securities are not as liquid as the secondary markets for higher rated
securities. The secondary markets for high yield debt securities are
concentrated in relatively few market makers and participants in the market are
mostly institutional investors, including insurance companies, banks, other
financial institutions and mutual funds. In addition, the trading volume for
high yield debt securities is generally lower than that for higher-rated
securities and the secondary markets could contract under adverse market or
economic conditions independent of any specific adverse changes in the condition
of a particular issuer. These factors may have an adverse effect on the Fund's
ability to dispose of particular portfolio investments and may limit its ability
to obtain accurate market quotations for purposes of valuing securities and
calculating net asset value. If the Fund is not able to obtain precise or
accurate market quotations for a particular security, it will become more
difficult for the Company's Board of Directors to value its portfolio securities
and the Company's Directors may have to use a greater degree of judgment in
making such valuations. Less liquid secondary markets may also affect the Fund's
ability to sell securities at their fair value. In addition, the Fund may invest
up to 15% of its net assets, measured at the time of investment, in illiquid
securities, which may be more difficult to value and to sell at fair value. If
the secondary markets for high yield debt securities are affected by adverse
economic conditions, the proportion of the Fund's assets invested in illiquid
securities may increase.

In the case of corporate debt securities, while the market values of
securities rated below investment grade and comparable unrated securities tend
to react less to fluctuations in interest rate levels than do those of
higher-rated securities, the market values of certain of these securities also
tend to be more sensitive to individual corporate developments and changes in
economic conditions than higher-rated securities. Price volatility in these
securities will be reflected in the Fund's share value. In addition, such
securities generally present a higher degree of credit risk. Issuers of these
securities are often highly leveraged and may not have more traditional methods
of financing available to them, so that their ability to service their debt
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such issuers
is significantly greater than with investment grade securities because such
securities generally are unsecured and frequently are subordinated to the prior
payment of senior indebtedness. The recent economic recession has resulted in
default levels in excess of historic averages.

Investing in sovereign debt securities will expose the Fund to the direct
or indirect consequences of political, social or economic changes in the
developing and emerging countries that issue the securities. The ability and
willingness of sovereign obligors in developing and emerging countries or the
governmental authorities that control repayment of their external debt to pay
principal and interest on such debt when due may depend on general economic and
political conditions within the relevant country.

<PAGE> 55

Countries such as those in which several of the Funds may invest have
historically experienced, and may continue to experience, high rates of
inflation, high interest rates, exchange rate and trade difficulties and extreme
poverty and unemployment. Many of these countries are also characterized by
political uncertainty or instability. Additional factors which may influence the
ability or willingness to service debt include, but are not limited to, a
country's cash flow situation, the availability of sufficient foreign exchange
on the date a payment is due, the relative size of its debt service burden to
the economy as a whole, and its government's policy towards the International
Monetary Fund, the World Bank and other international agencies.

The ability of a foreign sovereign obligor to make timely payments on its
external debt obligations will also be strongly influenced by the obligor's
balance of payments, including export performance, its access to international
credits and investments, fluctuations in interest rates and the extent of its
foreign reserves. A country whose exports are concentrated in a few commodities
or whose economy depends on certain strategic imports could be vulnerable to
fluctuations in international prices of these commodities or imports. To the
extent that a country receives payment for its exports in currencies other than
dollars, its ability to make debt payments denominated in dollars could be
adversely affected. If a foreign sovereign obligor cannot generate sufficient
earnings from foreign trade to service its external debt, it may need to depend
on continuing loans and aid from foreign governments, commercial banks and
multilateral organizations, and inflows of foreign investment. The commitment on
the part of these foreign governments, multilateral organizations and others to
make such disbursements may be conditioned on the government's implementation of
economic reforms and/or economic performance and the timely service of its
obligations. Failure to implement such reforms, achieve such levels of economic
performance or repay principal or interest when due may result in the
cancellation of such third parties' commitments to lend funds, which may further
impair the obligor's ability or willingness to timely service its debts. The
cost of servicing external debt will also generally be adversely affected by
rising international interest rates, because many external debt obligations bear
interest at rates which are adjusted based upon international interest rates.
The ability to service external debt will also depend on the level of the
relevant government's international currency reserves and its access to foreign
exchange. Currency devaluations may affect the ability of a sovereign obligor to
obtain sufficient foreign exchange to service its external debt.

As a result of the foregoing, a governmental obligor may default on its
obligations. If such an event occurs, the Fund may have limited legal recourse
against the issuer and/or guarantor. Remedies must, in some cases, be pursued in
the courts of the defaulting party itself, and the ability of the holder of
foreign sovereign debt securities to obtain recourse may be subject to the
political climate in the relevant country. In addition, no assurance can be
given that the holders of commercial bank debt will not contest payments to the
holders of other foreign sovereign debt obligations in the event of default
under their commercial bank loan agreements.

Sovereign obligors in developing and emerging countries are among the
world's largest debtors to commercial banks, other governments, international
financial organizations and other financial institutions. These obligors have in
the past experienced substantial difficulties in servicing their external debt
obligations, which led to default on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by negotiating
new or amended credit agreements or converting outstanding principal and unpaid
interest to Brady Bonds (see below), and obtaining new credit to finance
interest payments. Holders of certain foreign sovereign debt securities may be
requested to participate in the restructuring of such obligations and to extend
further loans to their issuers. There can be no assurance that the Brady Bonds
and other foreign sovereign debt securities in which the Fund may invest will
not be subject to similar restructuring arrangements or to requests for new
credit which may adversely affect the Fund's holdings. Furthermore, certain
participants in the secondary market for such debt may be directly involved in
negotiating the terms of these arrangements and may therefore have access to
information not available to other market participants.

<PAGE> 56

In an effort to reduce credit risk, the ESC Strategic Income Fund
diversifies its holdings among many issuers. As of March 31, 1999, the ESC
Strategic Income Fund held securities of _____ issuers.

The chart below shows, on a dollar-weighted basis, the credit quality
characteristics of the Strategic Income Fund. The chart reflects average
percentages of the Strategic Income Fund's assets invested in bonds having the
ratings shown below, based upon the Strategic Income Fund's portfolio holdings
at March 31, 1999.

10
<PAGE> 57

<TABLE>
<CAPTION>
PERCENT OF
RATINGS ASSETS

<S> <C>
Cash & Equivalents ........................................................................____%
Aaa/AAA....................................................................................____%
Aa/AA .....................................................................................____%
A/A .......................................................................................____%
Baa/BBB....................................................................................____%
Ba/BB .....................................................................................____%
B/B .......................................................................................____%
Caa/CCC....................................................................................____%
Ca/CC .....................................................................................____%
Lower .....................................................................................____%
</TABLE>

PERCENT OF
UNRATED, BUT EQUIVALENT TO ASSETS

The above chart is intended solely to provide disclosure about the ESC Strategic
Income Fund's asset composition at March 31, 1998. The asset composition after
this time may or may not be approximately the same as shown above. The chart
reflects ratings by Moody's where they were available, and ratings assigned by
Moody's may not be consistent with ratings assigned by S&P or other credit
rating services, and the Adviser or a Manager may not necessarily agree with a
rating assigned by Moody's, S&P or another credit rating agency.

Municipal Lease Obligations (ESC Strategic Income Fund). Municipal lease
obligations have special risks not normally associated with municipal bonds.
These obligations frequently contain "non-appropriation" clauses that provide
that the governmental issuer of the obligation has no obligation to make future
payments under the lease or contract unless money is appropriated for such
purposes by the legislative body on a yearly or other periodic basis. For more
information on risks of municipal lease investments, see the SAI.

Short Sales (All Funds except ESC Strategic Income Fund). A Fund will incur
a loss as a result of a short sale (other than a short sale against the box) if
the price of the security increases between the date of the short sale and the
date on which the Fund replaces the borrowed security. Possible losses from such
short sales differ from losses that could be incurred from a purchase of a
security, because losses from such short sales may be unlimited, whereas losses
from purchases of a security can equal only the total amount invested. To limit
these risks, a Fund's short sales (other than short sales against the box) will
be only with respect to securities fully listed on a national securities
exchange and will not at any time exceed a dollar amount equal to 25% of the
Fund's net equity. Further, a Fund's short sales of securities of a single
issuer will not exceed the lesser of 2% of the value of the Fund's net assets or
2% of the securities of any class of the issuer.

Risks of Illiquid Securities (All Funds). A Fund may invest up to 15% of
its net assets, measured at the time of investment, in illiquid securities.
Illiquid securities include those on which there are legal restrictions on
trading ("restricted securities") as well as those for which there is a limited
trading market. These securities may be difficult for a Fund to sell and may
also be difficult to value accurately, requiring a greater degree of judgment as
to valuation by the Fund's Board of Directors, with a consequent effect on the
Fund's share value. Securities with a limited trading market may also be more
difficult to sell at a fair price.

Forward Commitments and When-Issued Securities. (ESC Strategic Income
Fund). The Fund may purchase when-issued securities and make contracts to
purchase securities for a fixed price at a

<PAGE> 58

future date beyond customary settlement time if the Fund holds and maintains
until the settlement date in a segregated account cash, or liquid securities in
an amount sufficient to meet the purchase price, or if the Fund enters into
offsetting contracts for the forward sale of other securities it owns.
Purchasing securities on a when-issued basis and forward commitments involve a
risk of loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in value of
the Fund's other assets. No income accrues on securities purchased on a
when-issued basis prior to the time delivery of the securities is made, although
the Fund may earn interest on securities it has deposited in the segregated
account because it does not pay for the when-issued securities until they are
delivered. Investing in when-issued securities has the effect of (but is not the
same as) leveraging the Fund's assets. Although the Fund would generally
purchase securities on a when-issued basis or enter into forward commitments
with the intention of actually acquiring securities, it may dispose of a
when-issued security or forward commitment prior to settlement if the Manager
deems it appropriate to do so. The Fund may realize short-term profits or losses
upon such sale.

Currency Risk (All Funds). Most of the foreign securities in which the
Funds invest will be denominated in foreign currencies. Changes in foreign
exchange rates will affect the value of securities denominated or quoted in
foreign currencies. Exchange rate movements can be large and can endure for
extended periods of time, affecting either favorably or unfavorably the value of
the Funds' assets. The Funds may, however, engage in foreign currency
transactions to protect their portfolios against fluctuations in currency
exchange rates in relation to the U.S. dollar. Such foreign currency
transactions may include forward foreign currency contracts, currency exchange
transactions on a spot (i.e., cash) basis, put and call options on foreign
currencies, and foreign exchange futures contracts. (See below.) The Funds
cannot assure that these techniques will always be successful.

Foreign Currency Options (All Funds). Currency options traded on U.S. or
other exchanges may be subject to position limits which may limit the ability of
a Fund to reduce foreign currency risk using such options. Over-the-counter
options differ from traded options in that they are two-party contracts with
price and other terms negotiated between buyer and seller and generally do not,
have as much market liquidity as exchange-traded options. Employing hedging
strategies with options on currencies does not eliminate fluctuations in the
prices of portfolio securities or prevent losses if the prices of such
securities decline. Furthermore, such hedging transactions reduce or preclude
the opportunity for gain if the value of the hedged currency should change
relative to the U.S. dollar. A Fund will not speculate in options on foreign
currencies. There is no assurance that a liquid secondary market will exist for
any particular foreign currency option, or at any particular time. In the event
no liquid secondary market exists, it might not be possible to effect closing
transactions in particular options. If a Fund cannot close out an option which
it holds, it would have to exercise its option in order to realize any profit
and would incur transactional costs on the sale of the underlying assets.

Interest Rate Futures Contracts (ESC Strategic Income Fund). This Fund may
purchase and sell interest rate futures contracts ("futures contracts") as a
hedge against changes in interest rates. A futures contract is an agreement
between two parties to buy and sell a security for a set price on a future date.
Futures contracts are traded on designated "contracts markets" which, through
their clearing corporations, guarantee performance of the contracts. Currently,
there are futures contracts based on securities such as long-term U.S. Treasury
bonds, U.S. Treasury notes, GNMA Certificates and three-month U.S. Treasury
bills. For municipal securities, there is the Bond Buyer Municipal Bond Index.

Generally, if market interest rates increase, the value of outstanding debt
securities declines (and vice versa). Entering into a futures contract for the
sale of securities has an effect similar to the actual sale of securities,
although sale of the futures contract might be accomplished more easily and
quickly. For example, if a Fund holds long-term U.S. Government securities and
its Manager anticipates a rise in long-term interest rates, the Fund could, in
lieu of disposing of its portfolio securities, enter into futures contracts for
the sale of similar long-term securities. If rates increased and the value of
the Fund's portfolio securities declined, the value of the Fund's futures
contracts would increase, thereby protecting the Fund by preventing net asset
value from declining as much as it otherwise would have. Similarly, entering
into

<PAGE> 59
futures contracts for the purchase of securities has an effect similar to actual
purchase of the underlying securities, but permits the continued holding of
securities other than the underlying securities. For example, if a Manager
expects long-term interest rates to decline, the Fund might enter into futures
contracts for the purchase of long-term securities, so that it could gain rapid
market exposure that may offset anticipated increases in the cost of securities
it intends to purchase, while continuing to hold higher-yielding short- term
securities or waiting for the long-term market to stabilize.

Stock Index Futures Contracts (ESC Strategic Appreciation Fund, ESC
Strategic International Equity Fund, ESC Strategic Small Cap Fund and ESC
Strategic Small Cap II Fund). These Funds may enter into stock index futures
contracts in order to protect the value of their common stock investments. A
stock index futures contract is an agreement in which one party agrees to
deliver to the other an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
As the aggregate market value of the stocks in the index changes, the value of
the index also will change. In the event that the index level rises above the
level at which the stock index futures contract was sold, the seller of the
stock index futures contract will realize a loss determined by the difference
between the two index levels at the time of expiration of the stock index
futures contract, and the purchaser will realize a gain in that amount. In the
event the index level falls below the level at which the stock index futures
contract was sold, the seller will recognize a gain determined by the difference
between the two index levels at the expiration of the stock index futures
contract, and the purchaser will realize a loss. Stock index futures contracts
expire on a fixed date, currently one to seven months from the date of the
contract, and are settled upon expiration of the contract.

The Funds intend to utilize stock index futures contracts only for the
purpose of attempting to protect the value of their common stock portfolios in
the event of a decline in stock prices and, therefore, usually will be sellers
of stock index futures contracts. This risk management strategy is an
alternative to selling securities in the portfolio and investing in money market
instruments. Also, stock index futures contracts may be purchased to protect a
Fund against an increase in prices of stocks which the Fund intends to purchase.
If the Fund is unable to invest its cash (or cash equivalents) in stock in an
orderly fashion, the Fund could purchase a stock index futures contract which
may be used to offset any increase in the price of the stock. However, it is
possible that the market may decline instead, resulting in a loss on the stock
index futures contract. If the Fund then concludes not to invest in stock at
that time, or if the price of the securities to be purchased remains constant or
increases, the Fund will realize a loss on the stock index futures contract that
is not offset by a reduction in the price of securities purchased. The Fund also
may buy or sell stock index futures contracts to close out existing futures
positions.

Option Writing and Purchasing (All Funds). A Fund may write (or sell) put
and call options on the securities that the Fund is authorized to buy or already
holds in its portfolio. These option contracts may be listed for trading on a
national securities exchange or traded over-the-counter. A Fund may also
purchase put and call options. A Fund will not write covered calls on more than
5% of its portfolio, and a Fund will not write covered calls with strike prices
lower than the underlying securities' cost basis on more than 5% of its total
portfolio. A Fund may not invest more than 5% of its total assets in option
purchases.

A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security at the agreed upon exercise (or
"strike") price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying security at
the strike price during the option period. Purchasers of options pay an amount,
known as a premium, to the option writer in exchange for the right under the
option contract.

A Fund may sell "covered" put and call options as a means of hedging the
price risk of securities in the Fund's portfolio. The sale of a call option
against an amount of cash equal to the put's potential liability constitutes a
"covered put." When a Fund sells an option, if the underlying securities do not
increase (in the case of a call option) or decrease (in the case of a put
option) to a price level that would make the exercise of the option profitable
to the holder of the option, the option will generally expire without being

<PAGE> 60
exercised and the Fund will realize as profit the premium paid for such option.
When a call option of which a Fund is the writer is exercised, the option holder
purchases the underlying security at the strike price and the Fund does not
participate in any increase in the price of such securities above the strike
price. When a put option of which a Fund is the writer is exercised, the Fund
will be required to purchase the underlying securities at the strike price,
which may be in excess of the market value of such securities.

Over-the-counter options ("OTC options") differ from exchange-traded
options in several respects. They are transacted directly with dealers and not
with a clearing corporation, and there is a risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than exchange-traded
options. Because OTC options are not traded on an exchange, pricing is normally
done by reference to information from a market marker. This information is
carefully monitored by the Managers and verified in appropriate cases. OTC
options transactions will be made by a Fund only with recognized U.S. Government
securities dealers. OTC options are subject to the Funds' 15% limit on
investments in securities which are illiquid or not readily marketable (see
"Investment Restrictions"), provided that OTC option transactions by a Fund with
a primary U.S. Government securities dealer which has given the Fund an absolute
right to repurchase according to a "repurchase formula" will not be subject to
such 15% limit.

It may be a Fund's policy, in order to avoid the exercise of an option sold
by it, to cancel its obligation under the option by entering into a closing
purchase transaction, if available, unless it is determined to be in the Fund's
interest to sell (in the case of a call option) or to purchase (in the case of a
put option) the underlying securities. A closing purchase transaction consists
of a Fund purchasing an option having the same terms as the option sold by the
Fund and has the effect of canceling the Fund's position as a seller. The
premium which a Fund will pay in executing a closing purchase transaction may be
higher than the premium received when the option was sold, depending in large
part upon the relative price of the underlying security at the time of each
transaction. To the extent options sold by a Fund are exercised and the Fund
either delivers portfolio securities to the holder of a call option or
liquidates securities in its portfolio as a source of funds to purchase
securities put to the Fund, the Fund's portfolio turnover rate may increase,
resulting in a possible increase in short-term capital gains and a possible
decrease in long-term capital gains.

Options on Futures Contracts (All Funds). A Fund may purchase and write put
and call options on futures contracts that are traded on a U.S. exchange or
board of trade and enter into related closing transactions to attempt to gain
additional protection against the effects of interest rate, currency or equity
market fluctuations. There can be no assurance that such closing transactions
will be available at all times. In return for the premium paid, such an option
gives the purchaser the right to assume a position in a futures contract at any
time during the option period for a specified exercise price.

A Fund may purchase put options on futures contracts in lieu of, and for
the same purpose as, the sale of a futures contract. It also may purchase such
put options in order to hedge a long position in the underlying futures
contract.

The purchase of call options on futures contracts is intended to serve the
same purpose as the actual purchase of the futures contracts. A Fund may
purchase call options on futures contracts in anticipation of a market advance
when it is not fully invested.

A Fund may write a call option on a futures contract in order to hedge
against a decline in the prices of the index or securities underlying the
futures contracts. If the price of the futures contract at expiration is below
the exercise price, the Fund would retain the option premium, which would
offset, in part, any decline in the value of its portfolio securities.

The writing of a put option on a futures contract is similar to the
purchase of the futures contracts, except that, if market price declines, a Fund
would pay more than the market price for the underlying securities or index
units. The net cost to that Fund would be reduced, however, by the premium
received

<PAGE> 61
on the sale of the put, less any transactions costs.

Risks of Options Transactions (All Funds). The purchase and writing of
options involves certain risks. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity to
profit from a price increase in the underlying securities above the exercise
price, but as long as its obligation as a writer continues, has retained the
risk of loss should the price of the underlying security decline. The writer of
an option has no control over the time when it may be required to fulfill its
obligation as a writer of the option. Once an option writer has received an
exercise notice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver the underlying
securities at the exercise price. If a put or call option purchased by a Fund is
not sold when it has remaining value, and if the market price of the underlying
security, in the case of a put, remains equal to or greater than the exercise
price, or in the case of a call, remains less than or equal to the exercise
price, the Fund will lose its entire investment in the option. Also, where a put
or call option on a particular security is purchased to hedge against price
movements in a related security, the price of the put or call option may move
more or less than the price of the related security. There can be no assurance
that a liquid market will exist when a Fund seeks to close out an option
position. Furthermore, if trading restrictions or suspensions are imposed on the
options market, a Fund may be unable to close out a position. If a Fund cannot
effect a closing transaction, it will not be able to sell the underlying
security while the previously written option remains outstanding, even if it
might otherwise be advantageous to do so. Options transactions involve,
additionally, risks similar to those described below in "Risks of Futures and
Related Options Transactions.

Risks of Futures and Related Options Transactions (All Funds). There are
several risks associated with the use of futures contracts and options on
futures contracts. While a Fund's use of futures contracts and related options
for hedging may protect a Fund against adverse movements in the general level of
interest rates or securities prices, such transactions could also preclude the
opportunity to benefit from favorable movements in the level of interest rates
or securities prices. There can be no guarantee that a Manager's forecasts about
market values, interest rates and other applicable factors will be correct or
that there will be a correlation between price movements in the hedging vehicle
and in the securities being hedged. The skills required to invest successfully
in futures and options may differ from skills required to manage other assets in
a Fund's portfolio. An incorrect forecast or imperfect correlation could result
in a loss on both the hedged securities in a Fund and the hedging vehicle so
that the Fund's return might have been better had hedging not been attempted.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a futures contract or futures option position. Most futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist. Lack of a
liquid market for any reason may prevent the Fund from liquidating an
unfavorable position and the Fund would remain obligated to meet margin
requirements until the position is closed. A Fund will only enter into futures
contracts or futures options which are standardized and traded on a U.S. or
foreign exchange or board of trade, or similar entity, or are quoted on an
automated quotation system. A Fund will not enter into a futures contract if
immediately thereafter the initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures options positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
Fund's total assets. The Funds may trade futures contracts and options on
futures contracts on U.S. domestic markets and also on exchanges located outside
of the United States. Foreign markets may offer advantages such as trading in
indices that are not currently traded in the United States. Foreign markets,
however, may have greater risk potential than domestic markets. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the Commodity Futures Trading Commission ("CFTC") and may be
subject to greater risk than trading on domestic exchanges. For example, some
foreign exchanges are principal markets so that no common clearing facility
exists and a trader may look only to the broker for performance of the contract.
In addition, any profits that a Fund might realize in trading could be
eliminated by adverse changes in the exchange rate of the currency in which the
transaction is

15
<PAGE> 62

denominated, or the Fund could incur losses as a result of changes in the
exchange rate. Transactions on foreign exchanges may include both commodities
that are traded on domestic exchanges or boards of trade and those that are not.

A Fund will incur brokerage fees in connection with its futures and options
transactions, and it will be required to segregate funds for the benefit of
brokers as margin to guarantee performance of its futures and options contracts.
In addition, while such contracts will be entered into to reduce certain risks,
trading in these contracts entails certain other risks. Thus, while a Fund may
benefit from the use of futures contracts and related options, unanticipated
changes in interest rates may result in a poorer overall performance for that
Fund than if it had not entered into any such contracts. Additionally, the
skills required to invest successfully in futures and options may differ from
skills required for managing other assets in the Fund's portfolio. Further,
although a Manager may engage in transactions with respect to index-based
futures contracts if the Manager believes a correlation exists between price
movements in the index and in a Fund's portfolio securities, such a correlation
is not likely to be perfect because the Fund's portfolio is not likely to
duplicate the index, making the futures contract an imperfect hedge.

Limitations on Futures Contracts and Options on Futures Contracts (All
Funds). Each Fund will use financial futures contracts and related options only
for "bona fide hedging" purposes, as such term is defined in applicable
regulations of the CFTC, or, with respect to positions in financial futures and
related options that do not qualify as "bona fide hedging" positions, will enter
such non-hedging positions only to the extent that aggregate initial margin
deposits plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would not exceed 5% of
the Fund's total assets.

Brady Bonds (ESC Strategic Income). "Brady Bonds" are created through the
exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructurings under a plan introduced by
former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Bonds have been issued only recently, and, accordingly, do not have a long
payment history. They may be collateralized or uncollateralized and issued in
various currencies (although most are dollar-denominated) and they are actively
traded in the over-the-counter secondary market.

Dollar-denominated, collateralized Brady Bonds, which may be fixed rate par
bonds or floating rate discount bonds, are generally collateralized in full as
to principal due at maturity by U.S. Treasury zero coupon obligations which have
the same maturity as the Brady Bonds. Interest payments on these Brady Bonds
generally are collateralized by cash or securities in an amount that, in the
case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's rolling interest payments based on the applicable interest rate at
that time and is adjusted at regular intervals thereafter. Certain Brady Bonds
are entitled to "value recovery payments" in certain circumstances, which in
effect constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute the "residual risk"). In the event of
a default with respect to collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will continue to be
outstanding at which time the face amount of the collateral will equal the
principal payments which would have then been due on the Brady Bonds in the
normal course. In addition, in light of the residual risk of Brady Bonds and,
among other factors, the history of defaults with respect to commercial bank
loans by public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds are to be viewed as speculative.

<PAGE> 63

Brady Plan debt restructurings totaling more than $80 billion have been
implemented to date in Argentina, Bolivia, Costa Rica, Mexico, Nigeria, the
Philippines, Uruguay and Venezuela with the largest proportion of Brady Bonds
having been issued to date by Argentina, Mexico and Venezuela. Brazil has
announced plans to issue Brady Bonds in respect of approximately $44 billion of
bank debt but there can be no assurance that the circumstances regarding the
issuance of Brady Bonds by Brazil will not change.

Most Argentine and Mexican Brady Bonds and a significant portion of the
Venezuela Brady Bonds issued to date are collateralized Brady Bonds with
interest coupon payments collateralized on a rolling-forward basis by funds or
securities held in escrow by an agent for the bondholders. Of the other issuers
of Brady Bonds, Bolivia, Nigeria, the Philippines and Uruguay have to date
issued collateralized Brady Bonds. While the Adviser anticipates that
collateralized Brady Bonds will be issued by Brazil, there can be no assurance
that any such obligations will be issued or, if so, when. A Fund may purchase
Brady Bonds with no or limited collateralization, and will be relying for
payment of interest and (except in the case of principal collateralized Brady
Bonds) principal primarily on the willingness and ability of the foreign
government to make payment in accordance with the terms of the Brady Bonds.
Brady Bonds issued to date are purchased and sold in secondary markets through
U.S. securities dealers and other financial institutions and are generally
maintained through European transnational securities depositories. Many of the
Brady Bonds and other sovereign debt securities in which a Fund invests are
likely to be acquired at a discount.

Warrants and Rights (All Funds). Each Fund may invest up to 5% of its net
assets in warrants or rights (other than those acquired in units or attached to
other securities) that entitle the holder to buy equity securities at a specific
price for a specific period of time but will do so only if the equity securities
are deemed appropriate by the Manager for inclusion in the Fund's portfolio.

Investment Companies and Investment Funds (All Funds). Each Fund may invest
in shares of other open-end or closed-end investment companies as permitted by
the Investment Company Act of 1940, as amended, and the rules promulgated
thereunder. To the extent the Fund invests a portion of its assets in investment
companies, those assets will be subject to the expenses of any such investment
company as well as to the expenses of the Fund itself. The Fund may not purchase
shares of any affiliated investment company except as permitted by SEC Rule or
Order.

Mortgage-Related

Securities (ESC Strategic Income Fund). Mortgage pass-through securities
are securities representing interests in "pools" of mortgages in which payments
of both interest and principal on the securities are made monthly, in effect
"passing through" monthly payments made by the individual borrowers on the
residential mortgage loans which underlie the securities (net of fees paid to
the issuer or guarantor of the securities).

Early repayment of principal on mortgage pass-through securities (arising
from prepayments of principal due to sale of the underlying property,
refinancing, or foreclosure, net of fees and costs which may be incurred) may
expose the Fund to a lower rate of return upon reinvestment of principal. Also,
if a security subject to prepayment has been purchased at a premium, in the
event of prepayment the value of the premium would be lost. Like other
fixed-income securities, when interest rates rise, the value of a
mortgage-related security generally will decline; however, when interest rates
decline, the value of mortgage-related securities with prepayment features may
not increase as much as other fixed-income securities. In recognition of this
prepayment risk to investors, the Public Securities Association (the "PSA") has
standardized the method of measuring the rate of mortgage loan principal
prepayments. The PSA formula, the Constant Prepayment Rate (the "CPR"), or other
similar models that are standard in the industry will be used by the Fund in
calculating maturity for purposes of its investment in mortgage-related
securities. Because the average life of mortgage - related securities may
lengthen with increases in interest rates, the portfolio-weighted average life
of the securities in which the Fund is invested may at times lengthen due to
this effect. Under these circumstances, the Manager may, but is not required to,
sell

<PAGE> 64

securities in order to maintain an appropriate portfolio-weighted average life.

Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (such as securities guaranteed by
the Government National Mortgage Association ("GNMA"); or guaranteed by agencies
or instrumentalities of the U.S. Government (such as securities guaranteed by
the Federal National Mortgage Association ("FNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC"), which are supported only by the discretionary
authority of the U.S. Government to purchase the agency's obligations). Mortgage
pass-through securities created by non-governmental issuers (such as commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issuers) may be supported by various
forms of insurance or guarantees, including individual loan, title, pool and
hazard insurance, and letters of credit, which may be issued by governmental
entities, private insurers or the mortgage poolers.

The Fund may also invest in investment grade Collateralized Mortgage
Obligations ("CMOs") which are hybrid instruments with characteristics of both
mortgage-backed bonds and mortgage pass-through securities. Similar to a bond,
interest and prepaid principal on a CMO are paid, in most cases, semi-annually.
CMOs may be collateralized by whole mortgage loans but are more typically
collateralized by portfolios of mortgage pass-through securities guaranteed by
GNMA, FHLMC or FNMA. CMOs are structured into multiple classes, with each class
bearing a different stated maturity. Monthly payments of principal, including
prepayments, are first returned to investors holding the shortest maturity
class; investors holding longer maturity classes receive principal only after
the first class has been retired. CMOs may be issued by government and
non-governmental entities. Some CMOs are debt obligations of FHLMC issued in
multiple classes with different maturity dates secured by the pledge of a pool
of conventional mortgages purchased by FHLMC. Other types of CMOs are issued by
corporate issuers in several series, with the proceeds used to purchase
mortgages or mortgage pass-through certificates. With some CMOs, the issuer
serves as a conduit to allow loan originators (primarily builders or savings and
loan associations) to borrow against their loan portfolios. To the extent a
particular CMO is issued by an investment company, the Fund's ability to invest
in such CMOs will be limited. See "Investment Restrictions" in the SAI.

Assumptions generally accepted by the industry concerning the probability
of early payment may be used in the calculation of maturities for debt
securities that contain put or call provisions, sometimes resulting in a
calculated maturity different from the stated maturity of the security.

It is anticipated that governmental, government-related or private entities
may create mortgage loan pools and other mortgage-related securities offering
mortgage pass-through and mortgage-collateralized investments in addition to
those described above. As new types of mortgage-related securities are developed
and offered to investors, the Manager will, consistent with the Fund's
investment objectives, policies and quality standards, consider making
investments in such new types of mortgage-related securities.

The Fund may also invest in Stripped Mortgage-Backed Securities ("SMBS"),
which are derivative multi-class mortgage securities issued by U.S. Government
agencies or instrumentalities or by private originators of, or investors in,
mortgage loans, including savings and loan associations, mortgage bankers,
commercial banks, investment banks and their special purpose subsidiaries.

SMBS generally have two classes: one (the "10" class) entitles the holders
to receive distributions consisting solely or entirely of all or a portion of
interest payments from the underlying pool of mortgages or mortgage-backed
securities ("mortgage assets"); the other (the "PO") class entitles the holders
to receive distributions consisting solely or primarily of all or a portion of
the principal of the underlying mortgage asset pool. The cash flows and yields
on 10 and PO classes are considerably more sensitive to changes in the rate of
principal payments (including prepayments) on the underlying mortgage assets
than an investment in a traditional mortgage-backed security, thus exposing the
Fund to more risk.

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REMICs: A REMIC is a CMO that qualifies for special tax treatment under the
code and invests in certain mortgages principally secured by interests in real
property. Investors may purchase beneficial interests in REMICs, which are known
as "regular" interests, or "residual" interests. Guaranteed REMIC pass-through
certificates ("REMIC Certificates") issued by FNMA or FHLMC represent beneficial
ownership interests in a REMIC trust consisting principally of mortgage loans or
FNMA, FHLMC or GNMA-guaranteed mortgage pass-through certificates. For FHLMC
REMIC Certificates, FHLMC guarantees the timely payment of interest, and also
guarantees the payment of principal as payments are required to be made on the
underlying mortgage participation certificates. FNMA REMIC Certificates are
issued and guaranteed as to timely distribution of principal and interest by
FNMA.

Parallel Pay Securities; PAC Bonds (ESC Strategic Income Fund). Parallel
pay CMOs and REMICs are structured to provide payments of principal on each
payment date to more than one class. These simultaneous payments are taken into
account in calculating the stated maturity date or final distribution date of
each class, that must be retired by its stated maturity date or final
distribution date but may be retired earlier. Planned Amortization Class CMOs
("PAC Bonds") generally require payments of a specified amount of principal on
each payment date. PAC Bonds are always parallel pay CMOs with the required
principal payment on such securities having the highest priority after interest
has been paid to all classes.

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The Fund may also invest in Stripped Mortgage-Backed Securities ("SMBS"),
derivative multi-class mortgage securities issued by U.S. Government agencies or
instrumentalities or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage bankers, commercial banks,
investment banks and their special purpose subsidiaries.

SMBS generally have two classes: one (the "IO" class) entitles the holders
to receive distributions consisting solely or entirely of all or a portion of
interest payments from the underlying pool of mortgages or mortgage-backed
securities ("mortgage assets"); the other (the "PO") class entitles the holders
to receive distributions consisting solely or primarily of all or a portion of
the principal of the underlying mortgage asset pool. The cash flows and yields
on IO and PO classes are considerably more sensitive to changes in the rate of
principal payments (including prepayments) on the underlying mortgage assets
than an investment in a traditional mortgage-backed security, thus exposing the
Fund to more risk.

Mortgage-Backed Security Rolls (ESC Strategic Income Fund). The Fund may
enter into "forward roll" transactions with respect to mortgage-backed
securities issued by GNMA, FNMA or FHLMC. In a forward roll transaction, that is
considered to be a borrowing by the Fund, the Fund will sell a mortgage security
to a bank or other permitted entity and simultaneously agree to repurchase a
similar security from the institution at a later date at an agreed upon price.
The mortgage securities that are repurchased will bear the same interest rate as
those sold, but generally will be collateralized by different pools of mortgages
with different prepayment histories than those sold. Risks of mortgage-backed
security rolls include: (i) the risk of prepayment prior to maturity, (ii) the
possibility that the proceeds of the sale may have to be invested in money
market instruments (typically repurchase agreements) maturing not later than the
expiration of the roll, and (iii) the possibility that the market value of the
securities sold by the Fund may decline below the price at which the Fund is
obligated to purchase the securities. Upon entering into a mortgage-backed
security roll, the Fund will be required to place cash, U.S. Government
Securities or other high-grade debt securities in a segregated account with its
Custodian in an amount equal to its obligation under the roll.

As new types of mortgage-related securities are developed and offered to
investors, the Manager will, consistent with the Fund's investment objectives,
policies and quality standards, consider making investments in such new types of
mortgage-related securities.

Other Asset-Backed Securities (ESC Strategic Income Fund). Other
asset-backed securities (unrelated to mortgage loans) have been offered to
investors, such as Certificates for Automobile Receivables ("CARS"). CARS
represent undivided fractional interests in a trust ("trust") whose assets
consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARS are "passed through" monthly to certificate holders and are
guaranteed up to certain amounts and for a certain time period by a letter of
credit issued by a financial institution unaffiliated with the trustee or
originator of the trust. Underlying sales contracts are subject to prepayment,
which may reduce the overall return to certificate holders. If the letter of
credit is exhausted, certificate holders may also experience delays in payment
or losses on CARS if the full amounts due on underlying sales contracts are not
realized by the trust because of unanticipated legal or administrative costs of
enforcing the contracts, or because of depreciation, damage or loss of the
vehicles securing the contracts, or other factors. For asset-backed securities,
the industry standard uses a principal prepayment model, the "ABS Model," which
is similar to the PSA model described previously under "

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<PAGE> 67

Mortgage-Related Securities," Either the PSA model, the ABS model or other
similar models that are standard in the industry will be used by the Fund in
calculating maturity for purposes of its investment in asset-backed securities.

Asset-backed securities are secured by non-mortgage assets such as company
receivables, truck and auto loans, leases and credit card receivables. Such
securities are generally issued as pass-through certificates, that represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, known as collateralized obligations
that are generally issued as the debt of a special purpose entity, such as a
trust, organized solely for the purpose of owning such assets and issuing such
debt.

Asset-backed securities are not issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; however, the payment of principal
and interest on such obligations may be guaranteed up to certain amounts and for
a certain period by a letter of credit issued by a financial institution (such
as a bank or insurance company) unaffiliated with the issuers of such
securities. The purchase of asset-backed securities raises risk considerations
peculiar to the financing of the instruments underlying such securities. For
example, there is a risk that another party could acquire an interest in the
obligations superior to that of the holders of the asset-backed securities.
There also is the possibility that recoveries on repossessed collateral may not,
in some cases, be available to support payments on those securities.
Asset-backed securities entail prepayment risk, that may vary depending on the
type of asset, but is generally less than the prepayment risk associated with
mortgage-backed securities. In addition, credit card receivables are unsecured
obligations of the card holder.

The market for asset-backed securities is at a relatively early state of
development. Accordingly, there may be a limited secondary market for such
securities. Some of the asset-backed securities in which the Fund may invest are
described below. Certificates for Automobile Receivables ("CARS"). CARS
represent undivided fractional interests in a trust whose assets consist of a
pool of motor vehicle retail installment sales contracts and security interests
in the vehicles securing the contracts. Payments of principal and interest on
CARS are "passed through" monthly to certificate holders and are guaranteed up
to certain amounts and for a certain time period by a letter of credit issued by
a financial institution unaffiliated with the trustee or originator of the
trust. Underlying sales contracts are subject to prepayment, that may reduce the
overall return to certificate holders. If the letter of credit is exhausted,
certificate holders may also experience delays in payment or losses on CARS if
the full amounts due on underlying sales contracts are not realized by the trust
because of unanticipated legal or administrative costs of enforcing the
contracts, or because of depreciation, damage or loss of the vehicles securing
the contracts, or other factors. For asset-backed securities, the industry
standard uses a principal prepayment model, the "ABS Model," which is similar to
the PSA model described previously under "Mortgage-Related Securities." Either
the PSA model, the ABS model or other similar models that are standard in the
industry will be used by the Fund in calculating the maturity for purposes of
its investment in asset-backed securities.

Structured Investments (ESC Strategic Income Fund). Structured Investments
are derivatives in the form of a unit or units representing an undivided
interest(s) in assets held in a trust that is not an investment company as
defined in the Investment Company Act of 1940. A trust unit pays a return based
on the total return of securities and other investments held by the trust and
the trust may enter into one or more swaps to achieve its objective. For
example, a trust may purchase a basket of securities and agree to exchange the
return generated by those securities for the return generated by another basket
or index of securities. The Fund will purchase structured investments in trusts
that engage in such swaps only where the counterparties are approved by the
Manager in accordance with credit-risk guidelines established by the Board of
Directors.

Structured Notes (ESC Strategic Income Fund). Structured Notes are
derivatives where the amount of principal repayment and or interest payments is
based upon the movement of one or more factors. These factors include, but are
not limited to, currency exchange rates, interest rates (such as the prime
lending

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rate and LIBOR) and stock indices such as the S&P 500 Index. In some
cases, the impact of the movements of these factors may increase or decrease
through the use of multipliers or deflators. The use of structured notes allows
the Fund to tailor its investments to the specific risks and returns the Manager
wishes to accept while avoiding or reducing certain other risks.

Swaps (ESC Strategic Income Fund). Swap contracts are derivatives in the
form of a contract or other similar instrument which is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The payment streams are calculated by reference to a specific index
and agreed upon notional amount. The term specified index includes, but is not
limited to, currencies, fixed interest rates, prices and total return on
interest rate indices, fixed-income indices, stock indices and commodity indices
(as well as amounts derived from arithmetic operations on these indices). For
example, the Fund may agree to swap the return generated by a fixed-income index
for the return generated by a second fixed-income index. The currency swaps in
which the Fund may enter will generally involve an agreement to pay interest
streams in one currency based on a specified index in exchange for receiving
interest streams denominated in another currency. Such swaps may involve initial
and final exchanges that correspond to the agreed upon notional amount.

The Fund will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two returns. The Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the Fund)
and any accrued but unpaid net amounts owed to a swap counterparty will be
covered by the maintenance of a segregated account consisting of cash or liquid
securities. The Fund will not enter into any swap agreement unless the
counterparty meets the rating requirements set forth in guidelines established
by the Fund's Board of Directors.

Interest rate and total rate of return swaps do not involve the delivery of
securities, other underlying assets, or principal. Accordingly, the risk of loss
with respect to interest rate and total rate of return swaps is limited to the
net amount of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate or total rate of return swap
defaults, the Fund's risk of loss consists of the net amount of interest
payments that a portfolio is contractually entitled to receive. In contrast,
currency swaps usually involve the delivery of the entire principal value of one
designated currency in exchange for the other designated currency. Therefore,
the entire principal value of a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations. If
there is a default by the counterparty, the Fund may have contractual remedies
pursuant to the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Swaps that include caps, floors, and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.

The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Manager is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the Fund would be less favorable than it would have been if this investment
technique were not used.

Zero Coupon Securities and Deferred Interest Obligations (ESC Strategic
Income Fund) The Fund may invest in zero coupon securities and deferred interest
obligations issued by the U.S. Treasury or by private issuers such as domestic
or foreign corporations. Zero coupon U.S. Treasury securities include: (1) U.S.
Treasury bills without interest coupons, (2) U.S. Treasury notes and bonds that
have been stripped of their unmatured interest coupons and (3) receipts or
certificates representing interests in such stripped debt obligations or
coupons. Zero coupon securities and deferred interest obligations usually trade
at a deep discount from their face or par value and will be subject to greater
fluctuations in market value in response to changing interest rates than debt
obligations of comparable maturities that

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<PAGE> 69
make current payments of interest. An additional risk of private-issuer zero
coupon securities and deferred interest obligations is the credit risk that the
issuer will be unable to make payment at maturity of the obligations.

While zero coupon securities do not require the periodic payment of
interest, deferred interest obligations generally provide for a period of delay
before the regular payment of interest begins. Although this period of delay is
different for each deferred interest obligation, a typical period is
approximately one-third of the obligation's term to maturity. Such investments
benefit the issuer by mitigating its initial need for cash to meet debt service,
but some also provide a higher rate of return to attract investors who are
willing to defer receipt of such cash. With zero coupon securities, however, the
lack of periodic interest payments means that the interest rate is "locked in"
and the investor avoids the risk of having to reinvest periodic interest
payments in securities having lower rates.

Because the Fund accrues taxable income from zero coupon and deferred
interest securities without receiving cash, the Fund may be required to sell
portfolio securities in order to pay dividends or redemption proceeds for its
shares, which require the payment of cash. This will depend on several factors;
the proportion of shareholders who elect to receive dividends in cash rather
than reinvesting dividends in additional shares of the Fund, and the amount of
cash income the Fund receives from other investments and the sale of shares. In
either case, cash distributed or held by the Fund that is not reinvested by
investors in additional Fund shares will hinder the Fund from seeking current
income.

Zero coupon bonds (which do not pay interest until maturity) and
pay-in-kind securities (which pay interest in the form of additional securities)
may be more speculative than securities which pay income periodically and in
cash. In addition, although the Fund receives no periodic cash payments from
such investments, applicable tax rules require the Fund to accrue on an
effective yield basis for original issue discount and pay out, its income from
such securities annually as income dividends and require stockholders to pay tax
on such dividends.

Custodial Receipts (ESC Strategic Income Fund). The Fund may acquire U.S.
Government Securities and their unmatured interest coupons that have been
separated (stripped) by their holder, typically a custodian bank or investment
brokerage firm. Having separated the interest coupons from the underlying
principal of the U.S. Government Securities, the holder will resell the stripped
securities in custodial receipt programs with a number of different names,
including Treasury Income Growth Receipts (TIGRs) and Certificate of Accrual on
Treasury Securities (CATS). The stripped coupons are sold separately from the
underlying principal, which is usually sold at a deep discount because the buyer
receives only the right to receive a future fixed payment on the security and
does not receive any rights to periodic interest (cash) payments. The underlying
U.S. Treasury bonds and notes themselves are generally held in book-entry form
at a Federal Reserve Bank. Counsel to the underwriters of these certificates or
other evidences of ownership of U.S. Treasury securities have stated that, in
their opinion, purchasers of the stripped securities most likely will be deemed
the beneficial holders of the underlying U.S. Government Securities for federal
tax and securities purposes. In the case of CATS and TIGRs, the IRS has reached
this conclusion for the purpose of applying the tax diversification requirements
applicable to regulated investment companies such as the Fund. CATS and TIGRs
are not considered U.S. Government Securities by the Staff of the SEC, however.
Further, the IRS' conclusion is contained only in a general counsel memorandum,
which is an internal document of no precedential value or binding effect, and a
private letter ruling, which also may not be relied upon by the Fund. The
Company is not aware of any binding legislative, judicial or administrative
authority on this issue.

Loan Participations (ESC Strategic Income Fund). Through a loan
participation, the Fund can buy from a lender a portion of a larger loan that it
has made to a borrower. By buying loan participations, the Fund may be able to
acquire interests in loans from financially strong borrowers that the Fund could
not otherwise acquire. These instruments are typically interests in floating or
variable rate senior loans to U.S. corporations, partnerships, and other
entities. Generally, loan participations are sold without guarantee or recourse
to the lending institution and are subject to the credit risks of both the
borrower and the lending

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<PAGE> 70
institution. While loan participations generally trade at par value, if the
borrowers have credit problems, some may sell at discounts. To the extent that
borrower's credit problems are resolved, the loan participations may then
appreciate in value. These loan participations, however, carry substantially the
same risk as that for defaulted debt obligations and may cause loss of the
entire investment. Most loan participations are illiquid and therefore will be
included in the Fund's limitation on illiquid investments.

Pay-in-Kind Bonds (ESC Strategic Income Fund). Pay-in-kind bonds are
securities that pay interest through the issuance of additional bonds. The Fund
will be deemed to receive interest over the life of the bonds and be treated as
if interest were paid on a current basis for federal income tax purposes,
although no cash interest payments are received by the Fund until the cash
payment date or until the bonds mature.

Trade Claims (ESC Strategic Income Fund). The Fund may invest in trade
claims. Trade claims are interest in amounts owed to suppliers of goods or
services and are purchased from creditors of companies in financial difficulty.
For purchasers such as the Fund, trade claims offer the potential for profits
since they are often purchased at a significant discount from face value and
consequently, may generate capital appreciation in the event that the market
value of the claim increases as the debtor's financial position improves or the
claim is paid.

An investment in trade claims is speculative and carries a high degree of
risk. Trade claims are illiquid securities which generally do not pay interest
and there can be no guarantee that the debtor will ever be able to satisfy the
obligation on the trade claim. The markets in trade claims are not regulated by
federal securities laws or the SEC. Because trade claims are unsecured, holders
of trade claims may have a lower priority in terms of payment than certain other
creditors in a bankruptcy proceeding.

Equity-Linked Securities (ESC Strategic Income Fund). The Fund may invest
in equity-linked securities, including, among others, PERCS, ELKS or LYONs,
which are securities that are convertible into, or the value of which is based
upon the value of, equity securities upon certain terms and conditions. The
amount received by an investor at maturity of such securities is not fixed but
is based on the price of the underlying common stock. It is impossible to
predict whether the price of the underlying common stock will rise or fall.
Trading prices of the underlying common stock will be influenced by the issuer's
operational results, by complex, interrelated political, economic, financial or
other factors affecting the capital markets, the stock exchanges on which the
underlying common stock is traded and the market segment of which the issuer is
a part. In addition, it is not possible to predict how equity-linked securities
will trade in the secondary market. The market for such securities may be
shallow, and high volume trades may be possible only with discounting. In
addition to the foregoing risks, the return on such securities depends on the
creditworthiness of the issuer of the securities, which may be the issuer of the
underlying securities or a third party investment banker or other lender. The
creditworthiness of such third party issuer of equity-linked securities may, and
often does, exceed the creditworthiness of the issuer of the underlying
securities. The advantage of using equity-linked securities over traditional
equity and debt securities is that the former are income producing vehicles that
may provide a higher income than the dividend income on the underlying equity
securities while allowing some participation in the capital appreciation of the
underlying equity securities. Another advantage of using equity-linked
securities is that they may be used for hedging to reduce the risk of investing
in the generally more volatile underlying equity securities.

The following are three examples of equity-linked securities. The Fund may
invest in the securities described below or other similar equity-linked
securities.

PERCS (ESC Strategic Income Fund). Preferred Equity Redemption Cumulative
Stock ("PERCS") technically is preferred stock with some characteristics of
common stock. PERCS are mandatorily convertible into common stock after a period
of time, usually three years, during which the investors' capital gains are
capped, usually at 30%. Commonly, PERCS may be redeemed by the issuer at any
time or if the issuer's common stock is trading at a specified price level or
better. The redemption price starts at the beginning of the PERCS duration
period at a price that is above the cap by the amount of the extra

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dividends the PERCS holder is entitled to receive relative to the common stock
over the duration of the PERCS and declines to the cap price shortly before
maturity of the PERCS. In exchange for having the cap on capital gains and
giving the issuer the option to redeem the PERCS at any time or at the specified
common stock price level, the Fund may be compensated with a substantially
higher dividend yield than that on the underlying common stock.

ELKS (ESC Strategic Income Fund). Equity-Linked Securities ("ELKS") differ
from ordinary debt securities, in that the principal amount received at maturity
is not fixed but is based on the price of the issuer's common stock. ELKS are
debt securities commonly issued in fully registered form for a term of three
years under an indenture trust. At maturity, the holder of ELKS will be entitled
to receive a principal amount equal to the lesser of a cap amount, commonly in
the range of 30% to 55% greater than the current price of the issuer's common
stock, or the average closing price per share of the issuer's common stock,
subject to adjustment as a result of certain dilution events, for the 10 trading
days immediately prior to maturity. Unlike PERCS, ELKS are commonly not subject
to redemption prior to maturity. ELKS usually bear interest during the
three-year term at a substantially higher rate than the dividend yield on the
underlying common stock. In exchange for having the cap on the return that might
have been received as capital gains on the underlying common stock, the Fund may
be compensated with the higher yield, contingent on how well the underlying
common stock does.

LYONs (ESC Strategic Income Fund). Liquid Yield Option Notes ("LYONs")
differ from ordinary debt securities, in that the amount received prior to
maturity is not fixed but is based on the price of the issuer's common stock.
LYONs are zero-coupon notes that sell at a large discount from face value. For
an investment in LYONs, the Fund will not receive any interest payments until
the notes mature, typically in 15 to 20 years, when the notes are redeemed at
face, or par value. The yield on LYONs, typically, is lower-than-market rate for
debt securities of the same maturity, due in part to the fact that the LYONs are
convertible into common stock of the issuer at any time at the option of the
holder of the LYONs. Commonly, the LYONs are redeemable by the issuer at any
time after an initial period or if the issuer's common stock is trading at a
specified price level or better, or, at the option of the holder, upon certain
fixed dates. The redemption price typically is the purchase price of the LYONs
plus accrued original issue discount to the date of redemption, which amounts to
the lower-than-market yield. The Fund will receive only the lower-than-market
yield unless the underlying common stock increases in value at a substantial
rate. LYONs are attractive to investors, like the Fund, when it appears that
they will increase in value due to the rise in value of the underlying common
stock.

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<PAGE> 72

Arbitrage (ESC Strategic Income Fund). The Fund may sell in one market a
security which it owns and simultaneously purchase the same security in another
market, or it may buy a security in one market and simultaneously sell it in
another market, in order to take advantage of differences between the prices of
the security in the different markets. Although the Fund does not actively
engage in arbitrage, such transactions may be entered into only with respect to
debt securities and will occur only in a dealer's market where the buying and
selling dealers involved confirm their prices to the Fund at the time of the
transaction, thus eliminating any risk to the assets of the Fund.

Foreign Index-Linked Instruments (ESC Strategic Income Fund). As part of
its investment program, and to maintain greater flexibility, the Fund may invest
in instruments which have the investment characteristics of particular foreign
securities, securities indexes, futures contracts or currencies. Such
instruments may take a variety of forms, such as debt instruments with interest
or principal payments determined by reference to the value of a currency or
commodity at a future point in time.

A foreign index may be based upon the exchange rate of a particular
currency or currencies or the differential between two currencies, or the level
of interest rates in a particular country or countries, or the differential in
interest rates between particular countries. The risks of such investments would
reflect the risks of investing in the index or other instrument, the performance
of which determines the return for the instrument. Tax considerations may limit
the Fund's ability to invest in foreign index-linked instruments.

Venture Capital (ESC Strategic Income Fund). The Fund may invest in venture
capital limited partnerships and venture capital funds that, in turn, invest
principally in securities of early stage, developing companies. Investments in
venture capital limited partnerships and venture capital funds present a number
of risks not found in investing in established enterprises including the facts
that such a partnership's or fund's portfolio will be composed almost entirely
of early-stage companies that may lack depth of management and sufficient
resources, that may be marketing a new product for which there is no established
market, and that may be subject to intense competition from larger companies.
Any investment in a venture capital limited partnership or venture capital fund
will lack liquidity, will be difficult to value, and the Fund will not be
entitled to participate in the management of the partnership or fund. If for any
reason the services of the general partners of a venture capital limited
partnership were to become unavailable, such limited partnership could be
adversely affected.

In addition to investing in venture capital limited partnerships and
venture capital funds, the Fund may directly invest in early-stage, developing
companies. The risks associated with investing in these securities are
substantially similar to the risks set forth above. The Fund will typically
purchase equity securities in these early-stage, developing companies; however
from time to time, the Fund may purchase non-investment grade debt securities in
the form of convertible notes.

Such investments involve costs at the venture capital level which are in
addition to those of the Fund.

Leveraged Buyouts (ESC Strategic Income Fund). The Fund may invest in
leveraged buyout limited partnerships and funds that, in turn, invest in
leveraged buyout transactions ("LBOs"). An LBO, generally, is an acquisition of
an existing business by a newly formed corporation financed largely with debt
assumed by such newly formed corporation to be later repaid with funds generated
from the acquired company. Since most LBOs are by nature highly leveraged
(typically with debt to equity ratios of approximately 9 to 1), equity
investments in LBOs may appreciate substantially in value given only modest
growth in the earnings or cash flow of the acquired business. Investments in LBO
partnerships and funds, however, present a number of risks. Investments in LBO
limited partnerships and funds will normally lack liquidity and may be subject
to intense competition from other LBO limited partnerships and funds.
Additionally, if the cash flow of the acquired company is insufficient to
service the debt assumed in the LBO, the LBO limited partnership or fund could
lose all or part of its investment in such acquired company.

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Non-Publicly Traded Securities; Rule 144A Securities (All Funds). A Fund
may purchase securities that are not registered under the Securities Act of
1933, as amended (the "1933 Act"), but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act ("Rule
144A Securities"). An investment in Rule 144A Securities will be considered
illiquid and therefore subject to a Fund's limitation on the purchase of
illiquid securities, unless the Fund's governing Board determines on an ongoing
basis that an adequate trading market exists for the security. In addition to an
adequate trading market, the Board will also consider factors such as trading
activity, availability of reliable price information and other relevant
information in determining whether a Rule 144A Security is liquid. This
investment practice could have the effect of increasing the level of illiquidity
in a Fund to the extent that qualified institutional buyers become uninterested
for a time in purchasing Rule 144A Securities. The Board will carefully monitor
any investments by a Fund in Rule 144A Securities. The Board may adopt
guidelines and delegate to the Manager the daily function of determining and
monitoring the liquidity of Rule 144A Securities, although the Board will retain
ultimate responsibility for any determination regarding liquidity.

Non-publicly traded securities (including Rule 144A Securities) may involve
a high degree of business and financial risk and may result in substantial
losses. These securities may be less liquid than publicly traded securities, and
a Fund may take longer to liquidate these positions than would be the case for
publicly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by a Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. A Fund's investments in illiquid securities are subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.

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INVESTMENT RESTRICTIONS

The following restrictions are fundamental policies of each Fund, and
except as otherwise indicated, may not be changed with respect to a Fund without
the approval of a majority of the outstanding voting securities of that Fund
which, as defined in the Investment Company Act of 1940 ("1940 Act"), means the
lesser of (1) 67% of the shares of such Fund present at a meeting if the holders
of more than 50% of the outstanding shares of such Fund are present in person or
by proxy, or (2) more than 50% of the outstanding voting shares of such Fund.

Each Fund, except as indicated, may not:

(1) Except for ESC Strategic Small Cap Fund, with respect to 75% of its
total assets, purchase more than 10% of the voting securities of any one issuer
or invest more than 5% of the value of such assets in the securities or
instruments of any one issuer, except securities or instruments issued or
guaranteed by the U.S. Government, its agencies or instrumentalities;

(2) Borrow money except that a Fund may borrow from banks up to 10% of the
current value of its total net assets for temporary or emergency purposes,
provided that a Fund may make no purchases if its outstanding borrowings exceed
5% of its total assets;

(3) Invest in real estate, provided that a Fund may invest in readily
marketable securities (except limited partnership interests) of issuers that
deal in real estate and securities secured by real estate or interests therein
and a Fund may hold and sell real estate (a) used principally for its own office
space or (b) acquired as a result of a Fund's ownership of securities.

(4) Engage in the business of underwriting securities of other issuers,
except to the extent that the purchase of securities directly from the issuer
(either alone or as one of a group of bidders) or the disposal of an investment
position may technically cause it to be considered an underwriter as that term
is defined under the Securities Act of 1933;

(5) Make loans, except that a Fund may (a) lend its portfolio securities,
(b) enter into repurchase agreements and (c) purchase the types of debt
instruments described in the Prospectus or the SAI;

(6) Purchase securities or instruments which would cause 25% or more of the
market value of the Fund's total assets at the time of such purchase to be
invested in securities or instruments of one or more issuers having their
principal business activities in the same industry, provided that there is no
limit with respect to investments in the U.S. Government, its agencies and
instrumentalities;

(7) Issue any senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and provided that collateral
arrangements with respect to forward contracts, futures contracts or options,
including deposits of initial and variation margin, are not considered to be the
issuance of a senior security for purposes of this restriction; or

(8) Purchase or sell commodity contracts, except that the Fund may invest
in futures contracts and in options related to such contracts (for purposes of
this restriction, forward foreign currency exchange contracts are not deemed to
be commodities).

For restriction number 1, above, securities backed only by the assets of a
non-governmental user will be deemed to be issued by that user. For purposes of
investment restriction number 6, public utilities are not deemed to be a single
industry but are separated by industrial categories, such as telephone or gas
utilities.

The following policies of the Funds are non-fundamental and may be changed
by the Board of

<PAGE> 75
Directors without shareholder approval. These policies provide that a Fund,
except as otherwise specified, may not:

(a) Invest in companies for the purpose of exercising control or
management;

(b) Invest in the securities of other investment companies in violation
of the Investment Company Act of 1940, as amended, and the rules
promulgated thereunder;

(c) Purchase securities on margin, except that a Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities;

(d) Mortgage, pledge, or hypothecate any of its assets, except that a
Fund may pledge not more than 15% of the current value of the Fund's total
net assets;

(e) Purchase or retain the securities of any issuer, if those
individual officers and Directors of the Company, the Adviser, the Fund's
Manager(s), the Administrator, or the Distributor, each owning beneficially
more than 1/2 of 1% of the securities of such issuer, together own more
than 5% of the securities of such issuer;

(f) Invest more than 5% of its net assets in warrants which are
unattached to securities; included within that amount, no more than 2% of
the value of the Fund's net assets, may be warrants which are not listed on
the New York or American Stock Exchanges;

(g) Write, purchase or sell puts, calls or combinations thereof, except
as described in the Prospectus or SAI;

(h) Invest more than 5% of the current value of its total assets in the
securities of companies which, including predecessors, have a record of
less than three years' continuous operation;

(i) Invest more than 15% of the value of its net assets in investments
which are illiquid, or not readily marketable (including repurchase
agreements having maturities of more than seven calendar days and variable
and floating rate demand and master demand notes not requiring receipt of
the principal note amount within seven days' notice); or

(j) Invest in oil, gas or other mineral exploration or development
programs, although it may invest in issuers that own or invest in such
programs.

MANAGEMENT

DIRECTORS AND OFFICERS

The principal occupations of the Directors and executive officers of the Company
for the past five years are listed below. The address of each, unless otherwise
indicated, is 3435 Stelzer Road, Columbus, Ohio 43219. Directors deemed to be
"interested persons" of the Company for purposes of the 1940 Act are indicated
by an asterisk.

<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH COMPANY PRINCIPAL OCCUPATION
- --------------------- --------------------- --------------------

<S> <C> <C>
*William Howard Director SunTrust Equitable Securities
Cammack, Jr. (1) -- Managing Director
800 Nashville City Center
Nashville, TN 37219-1743
Age: 41
</TABLE>

29
<PAGE> 76

<TABLE>
<S> <C> <C>
J. Bransford Wallace Director Willis Coroon Corporations
26 Century Boulevard (insurance)-- Vice Chairman
Nashville, TN 37214 (1994); Chairman (1992-93);
Age: 67 various positions since prior to
1989.

Brownlee O. Currey, Jr. Director Osborn Communications, Inc.--
1100 Broadway Chairman; Nashville Banner
Nashville, TN 37203 Publishing Company--
Age: 71 President.

E. Townes Duncan Director Solidus (1997 to present);
30 Burton Hill Corporation Comptronix
Suite 100 (contract manufacturing)--
Nashville, TN 37215 Chairman and Chief Executive
Age: 46 Officer (1993-1996); Massey
Burch Investment Group venture
capital) Principal (1985-1993).

John L. McAllister Vice President SunTrust Equitable Securities
Age: 36 -- Senior Vice President (1990-
present); Copyright Manage-
ment, Inc. - Analyst (1988-
1989).
R. Jeffrey Young President Employee of BISYS Fund
Age: 34 Services

Martin R. Dean Treasurer Employee of BISYS Fund
Age: 35 Services
</TABLE>

30
<PAGE> 77
Directors of the Company not affiliated with the Adviser, any Manager or
the Administrator receive from the Company an annual retainer of $2,000 and a
fee of $1,000 for each Board of Directors and Board committee meeting of the
Company attended and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Directors who are affiliated with the Adviser, a
Manager or the Administrator do not receive compensation from the Company. Total
Compensation disclosed below includes the annual retainer, meeting fees and
out-of-pocket expenses.

DIRECTOR COMPENSATION
(FOR FISCAL YEAR ENDED MARCH 31, 1999)

<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM
BENEFITS ESTIMATED REGISTRANT
AGGREGATE ACCRUED ANNUAL AND FUND
NAME OF COMPENSATION AS PART BENEFITS COMPLEX
PERSON FROM OF FUND UPON PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS
- -------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C>
J. Bransford Wallace $_____ 0 N/A $_____

Brownlee O. Currey, Jr. $_____ 0 N/A $_____

E. Townes Duncan $_____ 0 N/A $_____
</TABLE>

As of -, ________________, officers and Directors of the Company, as a
group, owned less than one percent of the outstanding shares of the Funds.

<PAGE> 78
INVESTMENT ADVISER

SunTrust Equitable Securities (the "Adviser") 800 Nashville City Center,
Nashville, Tennessee 37219-1743, serves as investment adviser to the Funds,
providing overall supervision of the Managers. The Adviser, formerly known as
Equitable Securities Corporation assumed its new name when it was acquired by
SunTrust Banks, Inc. on January 2, 1998 . For Funds with multiple Managers, the
Adviser determines what portion of each Fund's assets shall be allocated to each
Manager from time to time. For these services, the Adviser receives from each
Fund a fee at an annual rate of 1.00% for each of ESC Strategic Appreciation
Fund, ESC Strategic International Equity Fund, ESC Strategic Small Cap Fund, and
ESC Strategic Income Fund; and 1.25% for ESC Strategic Small Cap II Fund. Out of
these fees, the Adviser pays fees of the Managers.

Under the terms of the Investment Advisory Agreement for the Funds between
the Company and the Adviser ("Agreement"), the investment advisory services of
the Adviser to the Funds are not exclusive. The Adviser is free to, and does,
render investment advisory services to others.

The Agreement will continue in effect with respect to each Fund for a
period more than two years from the date of its execution, only as long as such
continuance is approved at least annually (i) by vote of the holders of a
majority of the outstanding voting securities of each Fund or by the Board of
Directors and (ii) by a majority of the Directors who are not parties to the
Agreement or "interested persons" (as defined in the 1940 Act) of any such
party. The Agreement was approved by the Board of Directors, including a
majority of the Directors who are not parties to the Agreement or interested
persons of any such parties, at its meeting held on October 20, 1997, and by the
shareholders of the Funds on December 19, 1997. The Agreement may be terminated
at any time without penalty by vote of the Directors (with respect to the
Company or a Fund) or, with respect to any Fund, by vote of the Directors or the
shareholders of that Fund, or by the Adviser, on 60 days written notice by
either party to the Agreement and will terminate automatically if assigned.

THE MANAGERS

The Adviser has entered into Portfolio Management Agreements with one or
more Managers for each Fund. Each Manager provides services to the particular
Fund as Manager. The Funds' Managers are as follows:

-- ESC Strategic Appreciation Fund -- Westcap Investors, LLC; Brandes
Investment Partners, L.P.; and Atlantic Capital Management, LLC.

-- ESC Strategic International Equity Fund --Murray Johnstone
International Limited.

-- ESC Strategic Income Fund -- Cincinnati Asset Management, Inc.

-- ESC Small Cap Fund -- Equitable Asset Management, Inc. (a division of
the Adviser's subsidiary, Equitable Trust Company).

-- ESC Strategic Small Cap II Fund -- Equitable Asset Management, Inc.

For more information on each Manager, see the Prospectus. The following is
information regarding fees, in dollars and as a percentage of each Fund's
assets, paid by the Adviser to Managers of each of the Funds for the periods
indicated:

32
<PAGE> 79

<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
MARCH 31, 1997 MARCH 31, 1998 MARCH 31, 1999
----------------- -------------------- -----------------
<S> <C> <C> <C> <C>
ESC STRATEGIC
APPRECIATION FUND:

Aggregate fees to
Adviser $419,329 .99% $ 482,226 1.00%

Aggregate fees to
Manager* $271,888 .64% $ 301,106 .62%

Fees retained by
Adviser $147,441 .35% $ 181,120 .38%

Fees paid to Equitable
Asset Management** $ 66,053 .16% $ 147,424 .03%

**EAM was terminated as a
Manager of this Fund effective
January 2, 1998.

ESC STRATEGIC
INTERNATIONAL
EQUITY FUND

Aggregate fees to
Adviser $207,116 .99% $ 189,362 1.00%

Aggregate fees to
Manager* $104,400 .50% $ 102,120 .54%

Fees retained by
Adviser $102,716 .49% $ 87,242 .46%

ESC STRATEGIC SMALL CAP FUND

Aggregate fees (Net) to
Adviser $652,644 .95% $1,387,887 1.00%

Aggregate fees to
Manager* $502,819 .73% $1,043,570 .75%

Fees retained by
Adviser $149,825 .22% $ 344,317 .25%

ESC STRATEGIC INCOME
FUND

Aggregate fees (Net) to
Adviser $380,147 1.00% $ 285,164 1.00%

Aggregate fees to
Manager* $ 94,515 .25% $ 102,117 .36%

Fees retained by
Adviser $285,632 .75% $ 183,047 .64%
</TABLE>

33
<PAGE> 80

<TABLE>
<CAPTION>
INCEPTION DATE
JANUARY 28, 1997
THROUGH FISCAL YEAR ENDED FISCAL YEAR ENDED
MARCH 31, 1997 MARCH 31, 1998 MARCH 31, 1999
---------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
ESC STRATEGIC
SMALL CAP II FUND

Aggregate fees to
Adviser $ 0 0% $199,592 1.00%

Aggregate fees to $4,177 .12% $ 84,478 .42%
Manager

Fees retained by
Adviser $ 0 0% $115,114 .58%
</TABLE>

*Pursuant to exemptive relief obtained from the Securities and Exchange
Commission, the Funds are permitted to disclose fees and fee rates on an
aggregate basis for individual Managers that are not affiliated with the
Adviser.

34
<PAGE> 81

For the period ended March 31, 1999, pursuant to an agreement to limit Fund
expenses, the Adviser waived fees of $__________, $__________and $__________ for
the International Equity, Small Cap II and Income Funds, respectively. The
Adviser, net of these waivers, received fees of $__________, $__________,
$__________, $__________, and $__________, from the Appreciation, International
Equity, Small Cap, Small Cap II and Income Funds, respectively. For the period
ended March 31, 1999, the Adviser also reimbursed the Income Fund a total of
$__________.

For the period ended March 31, 1998, pursuant to an agreement to limit Fund
expenses, the Adviser waived fees of $109,801 for the Small Cap II Fund. No
reimbursements were necessary for the Appreciation, International Equity, Small
Cap, Small Cap II or Income Funds. The Adviser received fees of $482,226,
$189,362, $1,387,887, $285,164, and $199,592 from the Appreciation,
International Equity, Small Cap, Income, and Small Cap II Funds, respectively,
for the period ended March 31, 1998.

For the fiscal year ended March 31, 1997, pursuant to an agreement to limit
Fund expenses, the Adviser waived fees of $7,185 for the Small Cap II Fund. The
Adviser waived its fees entirely with respect to the Small Cap II for the period
from January 28, 1997 (commencement of operations) through March 31, 1997. The
Adviser received fees of $380,147; $207,116; $652,644 and $419,329 the Income,
International Equity, Small Cap and Appreciation Funds, respectively, for the
fiscal year ended March 31, 1997.

Each Manager performs services pursuant to a Portfolio Management Agreement
appointing the Manager to act as Manager to a Fund, with responsibility for
management of such portion of the Fund's assets as the Adviser shall allocate to
the Manager from time to time.

Each Portfolio Management Agreement provides that the Manager's services to
the Fund are not exclusive. Each Manager is free to and does provide investment
advisory services to others.

Each Portfolio Management Agreement provides that it will continue in
effect for a period beyond two years from the date of its execution only so long
as such continuance is approved at least annually by (i) the Directors or by
vote of the holders of a majority of the Fund's outstanding voting securities
and (ii) by a majority of the Directors who are not parties to the Portfolio
Management Agreement or interested persons of any such party. The Portfolio
Management Agreement with Westcap Investors, LLC with respect to ESC Strategic
Appreciation Fund was approved by the Directors, including a majority of the
independent Directors, at a meeting held May 11, 1999. The Portfolio Management
Agreement with Llama Asset Management Company, L.P. with respect to ESC
Strategic Income Fund was approved by the Board of Directors, including a
majority of the Company's independent Directors, at a meeting held July 20,
1994, and was approved by shareholders of ESC Strategic Income Fund at a meeting
held September 7, 1994. The Portfolio Management Agreement with Atlantic Capital
Management, LLC with respect to ESC Strategic Appreciation Fund was approved by
the Directors, including a majority of the independent Directors, on February
10, 1998. The Portfolio Management Agreement with EAM with respect to ESC
Strategic Small Cap II Fund was approved by the Directors, including a majority
of the independent Directors, and by the sole initial shareholder of that Fund
on October 23, 1996. The other Portfolio Management Agreements for each Fund
were approved by the Board of Directors,

35
<PAGE> 82

including a majority of the Directors who are not parties to any Portfolio
Management Agreement or interested persons of any such party, at a meeting held
on April 4, 1994, and by the sole shareholder of each Fund on April 4, 1994.
Except for the Portfolio Management Agreement with Westcap Investors, LLC, the
Portfolio Management Agreements were re-approved at the October 20, 1997 Special
Board of Directors Meeting. Each Portfolio Management Agreement may be
terminated at any time without penalty (a) by the Adviser, by the Fund upon vote
of a majority of the Directors, or by vote of a majority of the Fund's
outstanding voting securities, each upon sixty days' written notice to the
Manager; or (b) by the Manager upon sixty days' notice to the Company or the
Adviser. A Portfolio Management Agreement will also terminate automatically in
the event of its assignment. The Company has received exemptive relief that
permits the Board of Directors, without shareholder approval, to approve and
cause the Company to enter into new Portfolio Management Agreements in the event
a new Manager is retained or an existing Portfolio Management Agreement is
amended, unless the Agreement is with a Manager affiliated with the Adviser.

DISTRIBUTION OF FUND SHARES

Effective January 2, 1998, BISYS Fund Services (the "Distributor") became
the Distributor for the Funds pursuant to a Distribution Contract and as
Distributor serves as principal underwriter for the shares of the Fund. Prior to
January 2, 1998, the Adviser served as the Company's distributor. The
Distribution Agreement provides that the Distributor will use its best efforts
to maintain a broad distribution of the Funds' shares among bona fide investors
and may enter into selling group agreements with responsible dealers and dealer
managers as well as sell the Funds' shares to individual investors. The
Distributor is not obligated to sell any specific amount of shares.

Service and distribution plans (the "Plans") have been adopted by each of
the Funds. Each Plan provides for different rates of fee payment with respect to
each class of shares, as described in the Prospectus. Pursuant to the Plans, the
Funds may pay directly or reimburse the Distributor monthly in amounts described
in the Prospectus for costs and expenses of marketing the shares, or classes of
shares, of the Funds. The Board of Directors has concluded that there is a
reasonable likelihood that the Plans will benefit the Funds and their
shareholders.

Each Plan provides that it may not be amended to increase materially the
costs which the Funds or a class of shares may bear pursuant to the Plan without
shareholder approval and that other material amendments of the Plans must be
approved by the Board of Directors, and by the Directors who are neither
"interested persons" (as defined in the 1940 Act) of the Company nor have any
direct or indirect financial interest in the operation of the particular Plan or
any related agreement, by vote cast in person at a meeting called for the
purpose of considering such amendments. The selection and nomination of the
Directors of the Company have been committed to the discretion of the Directors
who are not "interested persons" of the Company. The Plans were approved by the
Board of Directors and by the Directors who are neither "interested persons" nor
have any direct or indirect financial interest in the operation of any Plan
("Plan Director"), by vote cast in person at an April 4, 1994 meeting called for
the purpose of voting on the Plans, and by the sole shareholder of each class of
shares of each of the Funds on April 4, 1994 (October 23, 1996 with respect to
ESC Strategic Small Cap II Fund.) The continuance of the Plans was re-approved
by the Directors and by a majority of the Plan Directors at a meeting held on
February 10, 1998. Each Plan is terminable with respect to a class of shares of
a Fund at any time by a vote of a majority of the Plan Directors or by vote of
the holders of a majority of the shares of the class.

For the year ended March 31, 1999, the Distributor received $__________,
$__________, $__________, and $__________ for the Income, International Equity,
Small Cap, Appreciation and Small Cap II Funds, respectively pursuant to Class A
Plans. For the year ended March 31, 1999, the Distributor received $__________,
$__________, $__________, $__________, and $__________, for the Income,
International Equity, Small Cap, Appreciation and Small Cap II Funds,
respectively pursuant to Class D Plans.

36
<PAGE> 83

For the period ended March 31, 1998, the Distributor received $69,082,
$36,835, $265,118, $106,750 and $27,168 for the Income, International
Equity, Small Cap, Appreciation and Small Cap II, respectively pursuant
to Class A Plans. For the period ended March 31, 1998 the Distributor received
$6,626, $31,515, $245,556, $41,418 and $38,252 for the Income, International
Equity, Small Cap, Appreciation and Small Cap II Funds, respectively pursuant to
Class D Plans.

For the fiscal year ended March 31, 1997, the Distributor received $42,069;
$24,898; $127,326; $96,480 and $570 for the Income, International Equity, Small
Cap, Appreciation and Small Cap II Funds, respectively for Class A shares. For
the period, the Distributor received $10,963; $30,169; $108,542; $23,480 and
$279 for the Income, International Equity, Small Cap, Appreciation and Small Cap
II Funds, respectively pursuant to Class D Plans (which were formerly Class B
shares).

ADMINISTRATIVE SERVICES

BISYS Fund Services Limited Partnership d/b/a BISYS has served as
Administrator of the Funds since January 1, 1997. Since November 9, 1996, BISYS
Fund Services, Inc., also a subsidiary of The BISYS Group, Inc. ("BFSI") has
served as Transfer Agent and Fund Accountant to the Funds.

BISYS (the "Administrator") provides administrative services necessary for
the operation of the Funds, including among other things: (i) preparation of
shareholder reports and communications; (ii) regulatory compliance, such as
reports to and filings with the SEC and state securities commissions; and (iii)
general supervision of the operation of the Funds, including coordination of the
services performed by the Adviser, the Distributor, transfer agent, custodians,
independent accountants, legal counsel and others. In addition, BISYS furnishes
office space and facilities required for the conducting the business of the
Funds and pays the compensation of the Funds' officers, employees and Trustees
affiliated with BISYS. For these services, BISYS receives from each Fund a fee,
payable monthly, at the annual rate of 0.15% of each Fund's average daily net
assets.

For the period ended March 31, 1999, BISYS was entitled to fees in the
amount of $_____; $_____; $_____; $_____; $_____ and $_____; from the Income,
International Equity, Small Cap, Appreciation, Small Cap II Funds, respectively.

For the year ended March 31, 1998, BISYS was entitled to fees in the amount
of $42,775; $28,404; $208,183; $72,334 and $23,951 from the Income,
International Equity, Small Cap, Appreciation and Small Cap II Funds,
respectively. BISYS voluntarily waived fees of $18,729 for the Small Cap II Fund
for the year ended March 31, 1998.

For the period ended March 31, 1997, Furman Selz, the Funds' former
administrator, was entitled to fees of $43,472; $22,578; $63,535; and $44,387
from the Income, International Equity, Small Cap and

37
<PAGE> 84

Appreciation Funds, respectively. For the same period, BISYS, as successor
Administrator, was entitled to fees of $13,550; $8,489; $33,009; $18,512 and
$862 from the Income, International Equity, Small Cap, Appreciation and Small
Cap II Funds, respectively.

The Administration Agreement for the Funds was approved by the Board of
Directors, including a majority of the Directors who are not parties to the
Contract or interested persons of such parties, at its meeting held on October
23, 1996 and was re-approved at the November 4, 1997 Board of Directors Meeting.
The Administration Agreement is terminable with respect to a Fund or the Company
without penalty, at any time, by vote of a majority of the Directors or, with
respect to a Fund, by vote of the holders of a majority of the shares of the
Fund, each upon not more than 60 days written notice to the Administrator, and
upon 60 days notice, by the Administrator.

SERVICE ORGANIZATIONS

The Company may also contract with banks, trust companies, broker-dealers
or other financial organizations ("Service Organizations") to provide certain
administrative services for the Funds. Services provided by Service
Organizations may include among other things: providing necessary personnel and
facilities to establish and maintain certain shareholder accounts and records;
assisting in processing purchase and redemption transactions; arranging for the
wiring of funds; transmitting and receiving funds in connection with client
orders to purchase or redeem shares; verifying and guaranteeing client
signatures in connection with redemption orders, transfers among and changes in
client-designating accounts; providing periodic statements showing a client's
account balance and, to the extent practicable, integrating such information
with other client transactions; furnishing periodic and annual statements and
confirmations of all purchases and redemptions of shares in a client's account;
transmitting proxy statements, annual reports, and updating prospectuses and
other communications from the Funds to clients; and providing such other
services as the Funds or a client reasonably may request, to the extent
permitted by applicable statute, rule or regulation. Neither the Adviser nor any
Manager will be a Service Organization or receive fees for servicing.

Some Service Organizations may impose additional or different conditions on
their clients, such as requiring their clients to invest more than the minimum
initial or subsequent investments specified by the Funds or charging a direct
fee for servicing. If imposed, these fees would be in addition to any amounts
that might be paid to the Service Organization by the Funds. Each Service
Organization has agreed to transmit to its clients a schedule of any such fees.
Shareholders using Service Organizations are urged to consult them regarding any
such fees or conditions.

The Glass-Steagall Act and other applicable laws, among other things,
prohibit banks from engaging in the business of underwriting, selling or
distributing securities. There currently is no precedent prohibiting banks from
performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or interpretations
of such laws, as well as changes in either Federal or state statutes or
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, could prevent a bank from continuing to perform all
or a part of its servicing activities. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed herein
and banks and financial institutions may be required to register as dealers
pursuant to state law. If a bank were prohibited from so acting, its shareholder
clients would be permitted to remain shareholders of the Funds and alternative
means for continuing the servicing of such shareholders would be

<PAGE> 85
sought. In that event, changes in the operation of the Funds might occur and a
shareholder serviced by such a bank might no longer be able to avail itself of
any services then being provided by the bank. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
of these occurrences.

DETERMINATION OF NET ASSET VALUE

The Funds value their portfolio securities in accordance with the
procedures described in the Prospectus.

PORTFOLIO TRANSACTIONS

Investment decisions for the Funds and for the other investment advisory
clients of the Managers are made with a view to achieving their respective
investment objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved. Thus, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling the security. In some instances, one client may sell a
particular security to another client. It also sometimes happens that two or
more clients simultaneously purchase or sell the same security, in which event
each day's transactions in such security are, insofar as possible, averaged as
to price and allocated between such clients in a manner which in the Manager's
opinion is equitable to each and in accordance with the amount being purchased
or sold by each. There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on other clients.

The Funds have no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policies
established by the Company's Board of Directors, the Managers are primarily
responsible for portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Funds to obtain the best results
taking into account the broker-dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities. While the Managers generally seek
reasonably competitive spreads or commissions, the Funds will not necessarily be
paying the lowest spread or commission available.

Purchases and sales of securities will often be principal transactions in
the case of debt securities and equity securities traded otherwise than on an
exchange. The purchase or sale of equity securities will frequently involve the
payment of a commission to a broker-dealer who effects the transaction on behalf
of a Fund. Debt securities normally will be purchased or sold from or to issuers
directly or to dealers serving as market makers for the securities at a net
price. Generally, money market securities are traded on a net basis and do not
involve brokerage commissions. Under the 1940 Act, persons affiliated with the
Funds, the Adviser, the Managers and BISYS are prohibited from dealing with the
Funds as a principal in the purchase and sale of securities unless a permissive
order allowing such transactions is obtained from the SEC.

A Manager may, in circumstances in which two or more broker-dealers are in
a position to offer comparable results, give preference to a dealer that has
provided statistical or other research services to the Manager. By allocating
transactions in this manner, the Manager is able to supplement its research and
analysis with the views and information of securities firms. These items, which
in some cases may also be purchased for cash, include such matters as general
economic and securities market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities. Some of these services are of value to the Manager in advising
various of its clients (including the Funds), although not all of these services
are necessarily useful and of value in managing the Funds. The management fee
paid by the Funds is not reduced because the Manager and its affiliates receive
such services.

<PAGE> 86
As permitted by Section 28(e) of the Securities Exchange Act of 1934 (the
"Act"), a Manager may cause a Fund to pay a broker-dealer that provides
"brokerage and research services" (as defined in the Act) to the Manager an
amount of disclosed commission for effecting a securities transaction for the
Fund in excess of the commission which another broker-dealer would have charged
for effecting that transaction.

Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Directors may determine, the
Managers may consider sales of shares of the Funds as a factor in the selection
of broker-dealers to execute portfolio transactions for the Funds.

For the fiscal year ended March 31, 1999 the International Equity, Small
Cap, Appreciation and Small Cap II Funds paid total brokerage commissions of
$__________, $__________, $__________ and $__________, respectively to Equitable
Securities Corporation.

For the fiscal year ended March 31, 1998, the Income, International Equity,
Small Cap, Appreciation and Small Cap II Funds paid total brokerage commissions
of $309, $85,306, $228,380, $109,329, and $48,666, respectively to Equitable
Securities Corporation.

For the fiscal year ended March 31, 1997, the Appreciation Fund, Small Cap
Fund and the International Equity Fund paid brokerage commissions of $38,132,
$2,400 and $8,976, respectively, to Equitable Securities Corporation. The Funds
were advised that front-end sales charges of $1,212, $8,018, $212,117, $18,063
and $74,807 were paid to the Adviser from the Income, International Equity,
Small Cap, Appreciation and Small Cap II Funds, respectively.

PORTFOLIO TURNOVER

Changes may be made in the portfolio consistent with the investment
objectives and policies of the Funds whenever such changes are believed to be in
the best interests of the Funds and their shareholders. It is anticipated that
the annual portfolio turnover rate for a Fund normally will not exceed 100%,
although it may be higher under some circumstances. The portfolio turnover rate
is calculated by dividing the lesser of purchases or sales of portfolio
securities by the average monthly value of the Fund's portfolio securities. For
purposes of this calculation, portfolio securities exclude all securities having
a maturity when purchased of one year or less. The portfolio turnover rate for
the fiscal year ended March 31, 1999 was _____%, _____%, _____%, _____%, _____%
____ for the Income, International Equity, Small Cap, Appreciation, Small Cap II
, respectively. The portfolio turnover rate for the fiscal year ended March 31,
1998 was 130%, 79%, 67%, 67% and 86% for the Income, International Equity, Small
Cap, Appreciation and Small Cap II Funds, respectively. The portfolio turnover
rate for the fiscal year ended March 31, 1997 was 123%, 94%, 65% and 71% for
the Income, International Equity, Small Cap and Appreciation Funds,
respectively. The portfolio turnover rate for each Fund with Multiple Managers
will be an aggregate of the rates for each portion of assets managed by a
particular Manager. Rates for each portion may vary significantly.

TAXATION

Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Funds and the purchase, ownership, and disposition of Fund
shares. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to shareholders in light
of their particular circumstances. This discussion is based upon present
provisions of the Internal Revenue Code of

<PAGE> 87
1986, as amended (the "Code"), the regulations promulgated thereunder, and
judicial and administrative ruling authorities, all of which are subject to
change, which change may be retroactive. Prospective investors should consult
their own tax advisors with regard to the federal tax consequences of the
purchase, ownership, or disposition of Fund shares, as well as the tax
consequences arising under the laws of any state, foreign country, or other
taxing jurisdiction.

The Funds intend to continue to qualify annually as regulated investment
companies under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). To qualify as a regulated investment company, a Fund must (a) each
taxable year distribute to shareholders at least 90% of its investment company
taxable income (which includes, among other items, dividends, taxable interest
less expenses and the excess of net short-term capital gains over net long-term
capital losses); (b) derive in each taxable year at least 90% of its gross
income from dividends, interest, payments with respect to securities loans and
gains from the sale or other disposition of stock, securities or foreign
currencies or other income derived with respect to its business of investing in
such stock, securities or currencies; and (c) diversify its holdings so that, at
the end of each quarter of the taxable year, (i) at least 50% of the market
value of the Fund's assets is represented by cash and cash items (including
receivables), U.S. Government securities, the securities of other regulated
investment companies and other securities, with such other securities of any one
issuer limited for the purposes of this calculation to an amount not greater
than 5% of the value of the Fund's total assets and not greater than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or the securities of other regulated investment
companies), or of two or more issuers that the Fund controls and that are
determined to be engaged in the same business or similar or related businesses.
By meeting these requirements, a Fund generally will not be subject to Federal
income tax on its investment company taxable income and net capital gains which
are distributed to shareholders. If the Funds do not meet all of these Code
requirements, they will be taxed as ordinary corporations.

Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
prevent imposition of the excise tax, each Fund must distribute for each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (excluding any capital gains or losses) for the calendar year, (2) at
least 98% of the excess of its capital gains over capital losses (adjusted for
certain ordinary losses) for the one-year period ending October 31 of such year,
and (3) all ordinary income and capital gain net income (adjusted for certain
ordinary losses) for previous years that were not distributed during such years.
A distribution will be treated as paid on December 31 of a calendar year if it
is declared by a Fund during October, November or December of that year to
shareholders of record on a date in such a month and paid by the Fund during
January of the following year. Such distributions will be taxable to
shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received.

Distributions of investment company taxable income generally are taxable to
shareholders as ordinary income. Distributions from certain of the Funds may be
eligible for the dividends-received deduction available to corporations. The
Funds expect that distributions of net capital gains, if any, designated by a
Fund as capital gain dividends will generally be taxable to shareholders as
either "20% Gains" or "28% Gains," depending upon the Fund's holding period for
the assets sold. "20% Gains" arise from sales of assets held by the Fund for
more than 18 months and are subject to a maximum tax rate of 20%; "28% Gains"
arise from sales of assets held by the Fund for more than one year but no more
than 18 months and are subject to a maximum tax rate of 28%. Net capital gains
from assets held for one year or less will be taxed as ordinary income.
Distributions will be subject to these gains rates regardless of how long a
shareholder has held Fund shares, and all distributions are taxable to the
shareholder in the same manner whether reinvested in additional shares or
received in cash. Shareholders will be notified annually as to the Federal tax
status of distributions.

Distributions by a Fund reduce the net asset value of the Fund's shares.
Should a distribution reduce the net asset value below a stockholder's cost
basis, such distribution, nevertheless, would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment

<PAGE> 88
standpoint, it may constitute a partial return of capital. In particular,
investors should be careful to consider the tax implications of buying shares
just prior to a distribution by the Funds. The price of shares purchased at that
time includes the amount of the forthcoming distribution. Those purchasing just
prior to a distribution will receive a distribution which will nevertheless
generally be taxable to them.

Upon the taxable disposition (including a sale or redemption) of shares of
a Fund, a shareholder may realize a gain or loss depending upon his basis in his
shares. Such gain or loss generally will be treated as capital gain or loss if
the shares are capital assets in the shareholder's hands. Such gain or loss will
be long-term or short-term, generally depending upon the shareholder's holding
period for the shares. However, a loss realized by a shareholder on the
disposition of Fund shares with respect to which capital gain dividends have
been paid will, to the extent of such capital gain dividends, be treated as
long-term capital loss if such shares have been held by the shareholder for six
months or less. A loss realized on a disposition will be disallowed to the
extent the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
Shareholders receiving distributions in the form of additional shares will have
a cost basis for Federal income tax purposes in each share received equal to the
net asset value of a share of the Funds on the reinvestment date.

Under certain circumstances, the sales charge incurred in acquiring shares
of a Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of a Fund are
exchanged within 90 days after the date they were purchased and new shares of a
Fund are acquired without a sales charge or at a reduced sales charge. In that
case, the gain or loss recognized on the exchange will be determined by
excluding from the tax basis of the shares exchanged all or a portion of the
sales charge incurred in acquiring those shares. This exclusion applies to the
extent that the otherwise applicable sales charge with respect to the newly
acquired shares is reduced as a result of having incurred the sales charge
initially. Instead, the portion of the sales charge affected by this rule will
be treated as a sales charge paid for the new shares.

The taxation of equity options is governed by the Code section 1234.
Pursuant to Code section 1234, the premium received by a Fund for selling a put
or call option is not included in income at the time of receipt. If the option
expires, the premium is short-term capital gain to the Fund. If the Fund enters
into a closing transaction, the difference between the amount paid to close out
its position and the premium received is short-term capital gain or loss. If a
call option written by a Fund is exercised, thereby requiring the Fund to sell
the underlying security, the premium will increase the amount realized upon the
sale of such security and any resulting gain or loss will be a capital gain or
loss, and will be long-term or short-term depending upon the holding period of
the security. With respect to a put or call option that is purchased by a Fund,
if the option is sold, any resulting gain or loss will be a capital gain or
loss, and will be long-term or short-term, depending upon the holding period of
the option. If the option expires, the resulting loss is a capital loss and is
long-term or short-term, depending upon the holding period of the option. If the
option is exercised, the cost of the option, in the case of a call option, is
added to the basis of the purchased security and, in the case of a put option,
reduces the amount realized on the underlying security in determining gain or
loss.

Certain of the options, futures contracts, and forward foreign currency
exchange contracts that several of the Funds may invest in are so-called
"section 1256 contracts." With certain exceptions, gains or losses on section
1256 contracts generally are considered 60% long-term and 40% short-term capital
gains or losses ("60/40"). Also, section 1256 contracts held by a Fund at the
end of each taxable year (and, generally, for purposes of the 4% excise tax, on
October 31 of each year) are "marked-to-market" with the result that unrealized
gains or losses are treated as though they were realized and the resulting gain
or loss is treated as 60/40 gain or loss.

Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by a Fund. In

<PAGE> 89
addition, losses realized by a Fund on a position that is part of a straddle may
be deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences to a Fund of hedging transactions are not
entirely clear. Hedging transactions may increase the amount of short-term
capital gain realized by a Fund which is taxed as ordinary income when
distributed to stockholders.

A Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.

<PAGE> 90
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not engage in such hedging transactions.

Recently enacted rules may affect the timing and character of gain if a
Fund engages in transactions that reduce or eliminate its risk of loss with
respect to appreciated financial positions. If a Fund enters into certain
transactions in property while holding substantially identical property, the
Fund would be treated as if it had sold and immediately repurchased the property
and would be taxed on any gain (but not loss) from the constructive sale. The
character of gain from a constructive sale would depend upon the Fund's holding
period in the property. Loss from a constructive sale would be recognized when
the property was subsequently disposed of, and its character would depend on the
Fund's holding period and the application of various loss deferral provisions of
the Code.

Notwithstanding any of the foregoing, a Fund may recognize gain (but not
loss)from a constructive sale of certain "appreciated financial position" if the
Fund enters into a short sale, notional principal contract, futures or forward
contract transaction with respect to the appreciated position or substantially
identical property. Appreciated financial positions subject to this constructive
sale treatment are interests (including options, futures and forward contracts
and short sales) in stock, partnership interests, certain actively traded trust
instruments and certain debt instruments. Constructive sale treatment does not
apply to certain transactions closed in the 90-day period ending with the
thirtieth day after the close of the Fund's taxable year, if certain conditions
are met. Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will recognize gain at that time as though it
had closed the short sale. Future Treasury Department regulations may apply
similar treatment to other transactions with respect to property that becomes
substantially worthless.

Certain requirements that must be met under the Code in order for a Fund to
qualify as a regulated investment company may limit the extent to which a Fund
will be able to engage in short sales and transactions in options, futures, and
forward contracts.

Certain of the debt securities acquired by a Fund may be treated as debt
securities that were originally issued at a discount. Original issue discount
can generally be defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Although no cash income
is actually received by the Fund, original issue discount on a taxable debt
security earned in a given year generally is treated for Federal income tax
purposes as interest and, therefore, such income would be subject to the
distribution requirements of the Code.

Some of the debt securities may be purchased by a Fund at a discount which
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for Federal income tax purposes.
The gain realized on the disposition of any debt security, including a
tax-exempt debt security, having market discount will be treated as ordinary
income to the extent it does not exceed the accrued market discount on such debt
security. Generally, market discount accrues on a daily basis for each day the
debt security is held by the Fund at a constant rate over the time remaining to
the debt security's maturity or, at the election of the Fund, at a constant
yield to maturity which takes into account the semi-annual compounding of
interest.

Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency, and the
time the Fund actually collects such receivables or pays such liabilities,
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of certain options and forward and futures contracts, gains or
losses attributable to fluctuations in the value of foreign currency between the
date of acquisition of the security or contract and the date of disposition also
are treated as ordinary gain or loss. These gains or losses, referred to under
the Code as "section 988" gains or losses, may increase, decrease, or eliminate
the

<PAGE> 91
amount of a Fund's investment company taxable income to be distributed to its
shareholders as ordinary income.

<PAGE> 92
Some Funds may invest in stocks of foreign companies that are classified
under the Code as passive foreign investment companies ("PFICs"). In general, a
foreign company is classified as a PFIC under the Code if at least one-half of
its assets constitutes investment-type assets or 75% or more of its gross income
is investment-type income. Under the PFIC rules, an "excess distribution"
received with respect to PFIC stock is treated as having been realized ratably
over the period during which the Fund held the PFIC stock. A Fund itself will be
subject to tax on the portion, if any, of the excess distribution that is
allocated to the Fund's holding period in prior taxable years (and an interest
factor will be added to the tax, as if the tax had actually been payable in such
prior taxable years) even though the Fund distributes the corresponding income
to stockholders. Excess distributions include any gain from the sale of PFIC
stock as well as certain distributions from a PFIC. All excess distributions are
taxable as ordinary income.

A Fund may be able to elect alternative tax treatment with respect to PFIC
stock. Under an election that currently may be available, a Fund generally would
be required to include in its gross income its share of the earnings of a PFIC
on a current basis, regardless of whether any distributions are received from
the PFIC. If this election is made, the special rules, discussed above, relating
to the taxation of excess distributions, would not apply. Alternatively, a Fund
may elect to mark-to-market its PFIC shares at the end of each taxable year,
with the result that unrealized gains are treated as though they were realized
and reported as ordinary income. Any mark-to-market losses and loss from an
actual disposition of PFIC shares would be deductible as ordinary losses to the
extent of any mark-to-market gains included in income in prior years.

Income received by a Fund from sources within foreign countries may be
subject to withholding and other similar income taxes imposed by the foreign
country. If more than 50% of the value of a Fund's total assets at the close of
its taxable year consists of securities of foreign corporations, the Fund will
be eligible and intends to elect to treat such foreign taxes paid by the Fund
that qualify as income or similar taxes under U.S. income tax principles as paid
by its shareholders. Pursuant to this election, a shareholder would be required
to include in gross income (in addition to taxable dividends actually received)
his pro rata share of the foreign taxes paid by a Fund, and would be entitled
either to deduct his pro rata share of foreign taxes in computing his taxable
income or to use it as a foreign tax credit against his U.S. Federal income tax
liability, subject to limitations. No deduction for foreign taxes may be claimed
by a shareholder who does not itemize deductions, but such a shareholder may be
eligible to claim the foreign tax credit (see below). Each shareholder will be
notified within 60 days after the close of a Fund's taxable year whether the
foreign taxes paid by a Fund will "pass-through" for that year and, if so, such
notification will designate (a) the shareholder's portion of the foreign taxes
paid to each such country and (b) the portion of the dividend which represents
income derived from foreign sources.

Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to his total foreign
source taxable income. For this purpose, if a Fund makes the election described
in the preceding paragraph, the source of the Fund's income flows through to its
shareholders. With respect to a Fund, gains from the sale of securities will be
treated as derived from U.S. sources and certain currency fluctuations gains,
including fluctuation gains from foreign currency-denominated debt securities,
receivables and payables, will be treated as ordinary income derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income (as defined for purposes of the foreign tax
credit) including foreign source passive income of a Fund. The foreign tax
credit limitation rules do not apply to certain elections by individual
taxpayers who have limited creditable foreign taxes and no foreign source income
other than passive investment-type income. The foreign tax credit is eliminated
with respect to foreign taxes withheld on dividends if the dividend-paying
shares or the shares of the Fund are held by the Fund or the shareholder, as the
case may be, for less than 16 days (46 days in the case of preferred shares)
during the 30-day period (90-day period for preferred shares) beginning 15 days
(45 days for preferred shares) before the shares become ex-dividend. The foreign
tax credit may offset only 90% of the alternative minimum tax imposed on
corporations and individuals, and foreign taxes generally may not be deducted in
computing alternative minimum taxable income.

<PAGE> 93
The Funds are required to report to the Internal Revenue Service ("IRS")
all distributions except in the case of certain exempt shareholders. All such
distributions generally are subject to withholding of Federal income tax at a
rate of 31% ("backup withholding") in the case of non-exempt shareholders if (1)
the shareholder fails to furnish the Funds with and to certify the shareholder's
correct taxpayer identification number or social security number, (2) the IRS
notifies the Funds or a shareholder that the shareholder has failed to report
properly certain interest and dividend income to the IRS and to respond to
notices to that effect, or (3) when required to do so, the shareholder fails to
certify that he is not subject to backup withholding. If the withholding
provisions are applicable, any such distributions, whether reinvested in
additional shares or taken in cash, will be reduced by the amounts required to
be withheld. Backup withholding is not an additional tax. Any amount withheld
may be credited against the shareholder's U.S. Federal income tax liability.
Investors may wish to consult their tax advisors about the applicability of the
backup withholding provisions.

The foregoing discussion relates only to Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
corporations, partnerships, trusts and estates). Distributions by the Funds also
may be subject to state and local taxes and their treatment under state and
local income tax laws may differ from the Federal income tax treatment.
Distributions of a Fund which are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities may be exempt
from state and local taxes in certain states. Shareholders should consult their
tax advisors with respect to particular questions of Federal, state and local
taxation. Shareholders who are not U.S. persons should consult their tax
advisors regarding U.S. and foreign tax consequences of ownership of shares of
the Funds including the likelihood that distributions to them would be subject
to withholding of U.S. tax at a rate of 30% (or at a lower rate under a tax
treaty).

Changes in the tax law frequently come under consideration. Since the Funds
do not undertake to furnish tax advice, it is important for shareholders to
consult their tax advisers regularly about the tax consequences to them of
investing in one or more of the Funds.

OTHER INFORMATION

CAPITALIZATION

The Company is a Maryland corporation established under Articles of
Incorporation dated November 24, 1993 and currently consists of five separately
managed portfolios. The Funds currently offer two classes of shares. The
capitalization of the Company consists solely of 650 million shares of common
stock with a par value of $0.001 per share. The Board of Directors may establish
additional Funds (with different investment objectives and fundamental
policies), or additional classes of shares, at any time in the future.
Establishment and offering of additional Funds or classes will not alter the
rights of the Company's shareholders. When issued, shares are fully paid,
non-assessable, redeemable and freely transferable. Shares do not have
preemptive rights or subscription rights. In any liquidation of a Fund or class,
each shareholder is entitled to receive his pro rata share of the net assets of
that Fund or class.

Expenses incurred in connection with each Fund's organization and the
public offering of its shares for the period ended March 31, 1999 was $_____
for Income, $_____ for International Equity, $_____ for Small Cap, $_____ for
Appreciation and $_____ for Small Cap II. Costs incurred in connection with the
organization and initial registration of the Funds, with the exception of the
Small Cap II Fund, have been deferred and are being amortized on a straight-line
basis over sixty months beginning with each Fund's commencement of operations.

47
<PAGE> 94
PRINCIPAL SHAREHOLDERS

As of June 22, 1999, the following persons owned of record or beneficially
5% or more shares of a class of the Funds:

<TABLE>
<CAPTION>
SHAREHOLDER SHARES OWNED PERCENTAGE
- ------------ ------------ -----------

<S> <C> <C>
ESC STRATEGIC APPRECIATION FUND - CLASS A
BT Alex Brown Incorporated %
FBO 495-07027-14
P.O. Box 1346
Baltimore, MD 21203-1346

BT Alex Brown Incorporated %**
FBO 495-20895-16
P.O. Box 1346
Baltimore, MD 21203-1346

Equitable Trust Company %
Suite 800
Nashville, TN 37219-1729

ESC STRATEGIC APPRECIATION FUND - CLASS D
BT Alex Brown Incorporated %
FBO 495-21832-10
P.O. Box 1346
Baltimore, MD 21203-1346

ESC STRATEGIC INTERNATIONAL EQUITY
FUND - CLASS A
Equitable Trust Company %
Nashville, TN 37219-1729

Comerica Bank TTEE %
Republic Automotive Parts Employees
Retirement Plan #72144
POB 75000/Attn M/C 3446 M/F Dept
Detroit, MI 48275-0001
</TABLE>
- ----------

** Beneficial ownership of shares is disclaimed by record account holder.

48
<PAGE> 95
<TABLE>
<CAPTION>
SHAREHOLDER SHARES OWNED PERCENTAGE
- ------------ ------------ -----------

<S> <C> <C>
ESC STRATEGIC INTERNATIONAL EQUITY
FUND - CLASS D
BT Alex Brown Incorporated %
FBO 495-21823-10
P.O. Box 1346
Baltimore, MD 21203-1346

BT Alex Brown Incorporated %
FOB 495-08452-16
P.O. Box 1346
Baltimore, MD 21203-1346

BT Alex Brown Incorporated %
FOB 495-21923-10
P.O. Box 1346
Baltimore, MD 21203-1346

H. Ronald Burton %
TRST Charles Lee Phillips Trust
Dtd 06/27/94
229 Ward Circle, Suite B-13
Brentwood, TN 37027

ESC STRATEGIC SMALL CAP FUND - CLASS A
Equitable Trust Company %
Nashville, TN 37219-1729

ESC STRATEGIC INCOME FUND - CLASS A
First American National Bank %
Cash
800 First American Center
Nashville, TN 37237-0801

Homeowners Association of Amer %
P.O. Box 221210
Ft. Lauderdale, FL 33355

Bankers Trust Company %**
FBO Nashville Memorial Foundation
Attn Mike Bloebaum
P.O. Box 9014
Church Street Station
New York, NY 10008
</TABLE>
- ----------

** Beneficial ownership of shares is disclaimed by record account holder.

49
<PAGE> 96
<TABLE>
<CAPTION>
SHAREHOLDER SHARES OWNED PERCENTAGE
- ------------ ------------ -----------

<S> <C> <C>
ESC STRATEGIC INCOME FUND - CLASS D
BT Alex Brown Incorporated %
FBO 495-26845-14
P.O. Box 1346
Baltimore, MD 21203-1346

BT Alex Brown Incorporated %
FBO 495-25434-13
P.O. Box 1346
Baltimore, MD 21203-1346

BT Alex Brown Incorporated %
FBO 495-21922-11
P.O. Box 1346
Baltimore, MD 21203-1346

BT Alex Brown Incorporated %
FBO 495-18067-12
P.O. Box 1346
Baltimore, MD 21203-1346
</TABLE>

- ----------

** Beneficial ownership of shares is disclaimed by record account holder.

<TABLE>
<CAPTION>
SHAREHOLDER SHARES OWNED PERCENTAGE
- ------------ ------------ -----------

<S> <C> <C>
ESC STRATEGIC SMALL CAP II FUND - CLASS A
none

ESC STRATEGIC SMALL CAP II FUND - CLASS D
none
</TABLE>

<PAGE> 97
VOTING RIGHTS

Under the Articles of Incorporation, the Company is not required to hold
annual meetings of each Fund's shareholders to elect Directors or for other
purposes. It is not anticipated that the Company will hold shareholders'
meetings unless required by law or the Articles of Incorporation. In this
regard, the retention of a new investment adviser for the Company, or a new
Manager with respect to a Fund, requires approval both by a majority of the
Company's directors, including a majority of its directors who are not parties
to such contract or "interested persons" (as defined in the Investment Company
Act of 1940) of any such party, and by a vote of a majority of the outstanding
voting securities of the Company or Fund, as applicable. For this purpose, the
"vote of a majority of the outstanding voting securities" of the Company or a
Fund, as applicable, means the vote of the lesser of (1) 67% of the shares of
the Company or Fund, as applicable, if the holders of more than 50% of the
outstanding shares of the Company or Fund, as applicable, are present in person
or by proxy; or (2) more than 50% of the outstanding shares of the Company or
Fund, as applicable. The Company received an order from the Securities and
Exchange Commission that permits it to retain new Managers and to approve
amendments of agreements with Managers without obtaining shareholder approval,
unless they are affiliated with the Adviser. Additionally, the Company will be
required to hold a meeting to elect Directors to fill any existing vacancies on
the Board if, at any time, fewer than a majority of the Directors have been
elected by the shareholders of the Company. In addition, the Articles of
Incorporation provide that the holders of not less than a majority of the
outstanding shares of the Company may remove persons serving as Director.

The Company's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Directors, in which case the holders of the remaining shares would not be able
to elect any Directors.

CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Union Bank of California, 475 Sansome Street, San Francisco, California
94111, acts as custodian of the Company's assets, but plays no role in making
decisions as to the purchase or sale of portfolio securities for the Funds.

BISYS Fund Services, Inc., a subsidiary of The BISYS Group, Inc. ("BFSI")
succeeded Furman Selz LLC as Transfer Agent and Fund Accountant to the funds
effective November 9, 1996. Pursuant to a Transfer Agency Agreement between the
Company and BFSI, BFSI provides the Company with transfer and dividend
disbursing agent services, for which it receives a fee of $15.00 per account per
year subject to a required minimum fee of $15,000 for each Fund, plus
out-of-pocket expenses. For the period ended March 31, 1999, BFSI, as Transfer
Agent, was entitled to and received fees in the amount of $_____, $_____,
$_____, $_____, $_____ and $_____ for the Income, International Equity,
Appreciation, Small Cap and Small Cap II Funds, respectively.

Pursuant to a Fund Accounting Agreement between the Company and BFSI, BFSI
assists the Company in calculating net asset values and provides certain other
accounting services for each Fund described therein, for an annual fee of
$30,000 per Fund plus out-of-pocket expenses. For the period ended March 31,
1999, BFSI, as Fund Accountant, earned for fund accounting services excluding
out-of-pocket expenses for each of the

51
<PAGE> 98

Income, International Equity, Small Cap, Appreciation and Small Cap II Funds.

YIELD AND PERFORMANCE INFORMATION

The Funds may, from time to time, include their yield, effective yield, and
average annual total return in advertisements or reports to shareholders or
prospective investors.

Quotations of yield for each class of shares of the Funds will be based on
the investment income per share earned during a particular 30-day period, less
expenses accrued with respect to that class during a period ("net investment
income"), and will be computed by dividing net investment income for the class
by the maximum offering price per share of that class on the last day of the
period, according to the following formula:

YIELD = 2[(a-b + 1)(6)-1]
cd

where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of any reimbursements), c = the average daily number of
shares of the class outstanding during the period that were entitled to receive
dividends, and d = the maximum offering price per share of the class on the last
day of the period.

The 30-day yield for the period ended March 31, 1999 was _____% and _____%
for Class A and Class D shares of the Income Fund, respectively.

Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in each
class of shares of a Fund over periods of 1, 5 and 10 years (up to the life of
the Fund), calculated pursuant to the following formula:

P (1 + T)n = ERV

(where P = a hypothetical initial payment of $1,000, T = the average annual
total return for the class, n = the number of years, and ERV = the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
period). All total return figures will reflect the deduction of the maximum
sales charge and a proportional share of Fund and class-specific expenses (net
of certain reimbursed expenses) on an annual basis, and will assume that all
dividends and distributions are reinvested when paid.

Quotations of yield and total return will reflect only the performance of a
hypothetical investment in a class of shares of the Funds during the particular
time period shown. Yield and total return for the Funds will vary based on
changes in the market conditions and the level of the Fund's (and classes')
expenses, and no reported performance figure should be considered an indication
of performance which may be expected in the future.

For the period April 25, 1994, May 4, 1994, May 12, 1994, June 8, 1994,
July 6, 1994, January 28, 1997 (commencement of operations) and May 7, 1997
(commencement of operations), respectively through March 31, 1999, the average
annual total returns for Class A shares were as follows: _____% for the Income
Fund, _____% for the International Equity Fund, _____% for the Small Cap Fund,
_____% for the Appreciation Fund, and _____% for the Small Cap II Fund.

52
<PAGE> 99

For the period May 4, 1994, May 12, 1994, June 8, 1994, July 6, 1994, and
January 28, 1997 (commencement of operations) and May 7, 1997 (commencement of
operations), respectively through March 31, 1999, the average annual total
returns for Class D shares were as follows: 5.44% for the Income Fund, 10.11%
for the International Equity Fund, 29.00% for the Small Cap Fund, 23.34% for the
Appreciation Fund and 33.89% for the Small Cap II Fund.

For year ended March 31, 1999, the annual total return for Class A shares
were as follows: _____% for the Income Fund, _____% for the International Equity
Fund, _____% for the Small Cap Fund, _____% for the Appreciation Fund and _____%
for the Small Cap II Fund. For the year ended March 31, 1999, the annual total
return for Class D shares were as follows: _____% for the Income Fund, _____%
for the International Equity Fund, _____% for the Small Cap Fund, _____% for the
Appreciation Fund and _____% for the Small Cap II Fund.

In connection with communicating its yields or total return to current or
prospective unit holders, the Funds also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
other unmanaged indexes which may assume reinvestment of dividends but generally
do not reflect deductions for administrative and management costs.

Performance information for the Funds may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, or other unmanaged indices so that investors may compare the
Funds' results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in a Fund.

Investors who purchase and redeem shares of the Funds through a customer
account maintained at a Service Organization may be charged one or more of the
following types of fees as agreed upon by the Service Organization and the
investor, with respect to the customer services provided by the Service
Organization: account fees (a fixed amount per month or per year); transaction
fees (a fixed amount per transaction processed); compensating balance
requirements (a minimum dollar amount a customer must maintain in order to
obtain the services offered); or account maintenance fees (a periodic charge
based upon a percentage of the assets in the account or of the dividends paid on
those assets). Such fees will have the effect of reducing the yield and average
annual total return of the Funds for those investors.

INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers, LLP ("PWC") serves as the independent accountants
for the Company. PWC provides audit services, tax return preparation and
assistance and consultation in connection with review of SEC filings.

COUNSEL

Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C.,
20006-2401, passes upon certain legal matters in connection with the shares
offered by the Company and also acts as Counsel to the Company.

REGISTRATION STATEMENT

This SAI and the Prospectus do not contain all the information included in
the Company's Registration Statement filed with the SEC under the Securities Act
of 1933 with respect to the securities offered hereby, certain portions of which
have been omitted pursuant to the rules and regulations of the SEC. The

<PAGE> 100
Registration Statement, including the exhibits filed therewith, may be examined
at the office of the SEC in Washington, D.C.

Statements contained herein and in the Prospectus as to the contents of any
contract or other documents referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other documents
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.

FINANCIAL STATEMENTS

The Report of Independent Accountants and audited financial statements of
the Funds included in their Annual Report for the period ended March 31, 1999
(the "Annual Report") are incorporated herein by reference to such Annual
Report. Copies of such Annual Report are available without charge upon request
by writing to ESC Strategic Funds, Inc., P.O. Box 182487, Columbus, Ohio
43218-2487 or telephoning (800) 261-FUND (3863).

The financial statements incorporated by reference into this Statement of
Additional Information have been audited by PWC, independent accountants, and
have been so included and incorporated by reference in reliance upon the report
of said firm, which report is given upon their authority as experts in auditing
and accounting.

54
<PAGE> 101

APPENDIX

DESCRIPTION OF BOND RATINGS
DESCRIPTION OF MOODY'S BOND RATINGS:

Excerpts from Moody's description of its bond ratings are listed as follows: AAA
- -- judged to be the best quality and they carry the smallest degree of
investment risk; AA -- judged to be of high quality by all standards -- together
with the AAA group, they comprise what are generally known as high grade bonds;
A -- possess many favorable investment attributes and are to be considered as
"upper medium grade obligations"; BAA -- considered to be medium grade
obligations, i.e., they are neither highly protected nor poorly secured --
interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time; BA -- judged to have speculative
elements, their future cannot be considered as well assured; B -- generally lack
characteristics of the desirable investment; CAA -- are of poor standing -- such
issues may be in default or there may be present elements of danger with respect
to principal or interest; CA -- speculative in a high degree, often in default;
C -- lowest rated class of bonds, regarded as having extremely poor prospects.

Moody's also supplies numerical indicators 1, 2 and 3 to rating categories. The
modifier 1 indicates that the security is in the higher end of its rating
category; the modifier 2 indicates a mid-range ranking; and modifier 3 indicates
a ranking toward the lower end of the category.

DESCRIPTION OF S&P'S BOND RATINGS:

Excerpts from S&P's description of its bond ratings are listed as follows: AAA
- -- highest grade obligations, in which capacity to pay interest and repay
principal is extremely strong; AA -- has a very strong capacity to pay interest
and repay principal, and differs from AAA issues only in a small degree; A --
has a strong capacity to pay interest and repay principal, although they are
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories; BBB -- regarded as
having an adequate capacity to pay interest and repay principal; whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories. This group is the lowest which qualifies for commercial bank
investment. BB, B, CCC, CC, C -- predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with terms of the
obligations; BB indicates the highest grade and C the lowest within the
speculative rating categories. D -- interest or principal payments are in
default.

S&P applies indicators "+," no character, and " - " to its rating categories.
The indicators show relative standing within the major rating categories.

DESCRIPTION OF MOODY'S RATINGS OF SHORT-TERM MUNICIPAL OBLIGATIONS:

Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or MIG or VMIG. Such ratings recognize the
differences between short-term credit and long-term risk. Short-term ratings on
issues with demand features (variable rate demand obligations) are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payments
relying on external liquidity. Ratings categories for securities in these groups
are as follows: MIG 1/VMIG 1 -- denotes best quality, there is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing; MIG 2/VMIG 2 -- denotes high
quality, margins of protection are ample although not as large as in the
preceding group; MIG 3/VMIG 3 -- denotes high quality, all security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades; MIG 4/VMIG 4 -- denotes adequate quality, protection commonly regarded
as required of an investment security is present, but there is specific risk; SQ
- -- denotes speculative quality, instruments in this category lack margins of

55
<PAGE> 102

protection.

DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:

Excerpts from Moody's commercial paper ratings are listed as follows: PRIME-1 --
issuers (or supporting institutions) have a superior ability for repayment of
senior short-term promissory obligations; PRIME-2 -- issuers (or supporting
institutions) have a strong ability for repayment of senior short-term
promissory obligations; PRIME-3 -- issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term promissory obligations;
NOT PRIME -- issuers do not fall within any of the Prime categories.

DESCRIPTION OF S&P'S RATINGS FOR CORPORATE AND MUNICIPAL BONDS:

INVESTMENT GRADE RATINGS: AAA -- the highest rating assigned by S&P, capacity to
pay interest and repay principal is extremely strong; AA -- has a very strong
capacity to pay interest and repay principal and differs from the highest rated
issues only in a small degree; A -- has strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories; BBB -- regarded as having an adequate capacity to pay interest and
repay principal -- whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.

SPECULATIVE GRADE RATINGS: BB, B, CCC, CC, C -- debt rated in these categories
is regarded as having predominantly speculative characteristics with respect to
capacity to pay interest and repay principal -- while such debt will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions; CI -- reserved for
income bonds on which no interest is being paid; D -- in default, and payment of
interest and/or repayment of principal is in arrears. PLUS (+) OR MINUS (-) --
the ratings from "AA" to "CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.

DESCRIPTION OF S&P'S RATING FOR MUNICIPAL NOTES AND SHORT-TERM MUNICIPAL DEMAND
OBLIGATIONS

Rating categories are as follows: SP-1 -- has a very strong or strong capacity
to pay principal and interest -- those issues determined to possess overwhelming
safety characteristics will be given a plus (+) designation; SP-2 -- has a
satisfactory capacity to pay principal and interest; SP-3 -- issues carrying
this designation have a speculative capacity to pay principal and interest.

DESCRIPTION OF S&P'S RATINGS FOR SHORT-TERM CORPORATE DEMAND OBLIGATIONS AND
COMMERCIAL PAPER:

An S&P commercial paper rating is a current assessment of the likelihood of
timely repayment of debt having an original maturity of no more than 365 days.
Excerpts from S&P's description of its commercial paper ratings are listed as
follows: A-1 -- the degree of safety regarding timely payment is strong -- those
issues determined to possess extremely strong safety characteristics will be
denoted with a plus ( + ) designation; A-2 -- capacity for timely payment is
satisfactory -- however, the relative degree of safety is not as high as for
issues designated "A-1;" A-3 -- has adequate capacity for timely payment --
however, is more vulnerable to the adverse effects of changes in circumstances
than obligations carrying the higher designations; B -- regarded as having only
speculative capacity for timely payment; C -- a doubtful capacity for payment; D
- -- in payment default -- the "D" rating category is used when interest payments
or principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will be made
during such grace period.

56
<PAGE> 103
PART C. OTHER INFORMATION

ITEM 23. EXHIBITS

(a)(1) Articles of Incorporation of Registrant. (1)
(a)(2) Certificate of Correction. (1)
(a)(3) Articles of Amendment. (Small Cap II) (5)
(b) By-laws of Registrant. (1)
(c) Specimen certificates of shares of common stock of Registrant. (1)
(d)(1) Investment Advisory Agreement. (6)
(d)(2) Portfolio Management Agreement for ESC Strategic Small Cap II Fund. (4)
(d)(3) Portfolio Management Agreement for other Funds of Registrant. (2)
(d)(4) Portfolio Management Agreement with Cincinnati Asset Management, Inc. (2)
(e)(1) Master Distribution Contract. (2)
(e)(2) Distribution Contract Supplements for ESC Strategic Small Cap II (4)
(e)(3) Distribution Contract Supplements for other Funds of Registrant. (2)
(e)(4) Form of Dealer and Selling Group Agreement. (1)
(e)(5) Form of Escrow Agreement. (1)
(f) N/A
(g) Custody Agreement. (2)
(h)(1) Administrative Services Contract. (5)
(h)(2) Transfer Agency Agreement. (5)
(h)(3) Sub-Transfer Agency Agreement. (2)
(h)(4) Accounting Agent Contract. (5)
(h)(5) Form of Services Agreement. (1)
(i) Opinion of Counsel. (1)
(j) Consent of Independent Accountants *
(k) Omitted Financial Statements N/A
(l)(1) Purchase Agreement. (2)
(l)(2) Purchase Agreement for ESC Strategic Small Cap II. (5)
(m) Form of Master Distribution Plan. (1)
Forms of Distribution Plan Supplement. (1)
(n) Financial Data Schedule *
(o) Multi-Class Plan, as amended January 14, 1997 (5)
(p) Power of Attorney in favor of Jeffrey L. Steele. (1)
- --------------------------------------------------------------------------------
* To be filed by post-effective amendment.

(1) Filed with Pre-Effective Amendment No. 3, April 5, 1994, and are
incorporated herein by reference.
(2) Filed with Post-Effective Amendment No. 2, July 28, 1995, and are
incorporated herein by reference.
(3) Filed with Post-Effective Amendment No. 3, July 26, 1996, and are
incorporated herein by reference.
(4) Filed with Post-Effective Amendment No. 6, December 5, 1996 and are
incorporated herein by reference.
(5) Filed with Post-Effective Amendment No. 7, February 18, 1997 and are
incorporated herein by reference.
(6) Filed with Post-Effective Amendment No. 8, July 29, 1997 and are
incorporated herein by reference.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.

None.

<PAGE> 104

ITEM 25. IDEMNIFICATION.

Reference is made to Article VII of Registrant's Articles of Incorporation.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant by the Registrant pursuant to the Articles of Incorporation or
otherwise, the Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Investment Company Act of 1940 and, therefore, is unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by directors, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such directors, officers or
controlling persons in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Investment Company Act of 1940 and will be governed by the
final adjudication of such issues.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.

SunTrust Equitable Securities, the investment adviser to ESC Strategic
Funds, Inc., is a New York Stock Exchange member investment banking and
securities brokerage firm. The names of SunTrust Equitable Securities' directors
and officers and their business and other connections for at least the past two
years are as follows: (1)

<TABLE>
<CAPTION>
BUSINESS AND
NAME TITLE OTHER CONNECTIONS
- ---- ----- -----------------
<S> <C> <C>
William H. Cammack, Sr. Chairman, Managing Position with
Director and Director Equitable Securities
Corporation, 1972 to
present; Director
and President ESC
Strategic Funds,
Inc., 1994 to
present.

Katie H. Gambill President, Head of Position with
Equity Capital Equitable
Markets, Managing Securities
Director and Director Corporation, 1972 to
present.

William P. Johnston Chief Executive Position with
Officer, Managing Equitable
Director and Director Securities Corporation,
1987 to present.

Hershel L. Smith, Jr. Chief Financial Position with
Officer, Chief Equitable
Operations Officer Securities
and Managing Director Corporation, 1986 to
present.

Tom R. Steele Managing Director and Position with
Director Equitable Securities
Corporation, 1988 to
present.

W. Howard Cammack, Jr. Managing Director and Position with
Director Equitable Securities
Corporation, 1979 to
present; Director
and Treasurer, ESC
Strategic Funds,
Inc., 1994 to
present.
</TABLE>

2
<PAGE> 105
<TABLE>
<S> <C> <C>

Raymond H. Pirtle, Jr. Managing Director Position with
Equitable Securities
Corporation, 1989 to
present

Stephen S. Riven Managing Director Position with
Equitable Securities
Corporation, 1989 to
present

Roger T. Briggs, Jr. Managing Director Position with
Equitable Securities
Corporation, 1995 to
present
</TABLE>

(1) THE ADDRESS OF ALL DIRECTORS AND OFFICERS OF SUNTRUST EQUITABLE
SECURITIES IS 800 NASHVILLE CITY CENTER, NASHVILLE, TENNESSEE
37279-1743.

ITEM 27. PRINCIPAL UNDERWRITER

(a). BISYS Fund Services Limited Partnership acts as Distributor/Underwriter
for other registered investment companies:

Allianz Funds
Alpine Equity Trust
American Performance Funds
AmSouth Mutual Funds
The BB&T Mutual Funds Group
The Coventry Group
The Eureka Funds
Governor Funds
Fifth Third Funds
Hirtle Callaghan Trust
HSBC Funds Trust and HSBC Mutual Funds Trust
INTRUST Funds Trust
The Infinity Mutual Funds, Inc.
The Kent Funds
Magna Funds
Meyers Investment Trust
Mercantile Mutual Funds
MMA Praxis Mutual Funds
M.S.D.&T. Funds
Pacific Capital Funds
The Parkstone Advantage Fund
Puget Sound Alternative Investment Series Trust
Republic Advisor Funds Trust
Republic Funds Trust
Sefton Fund Trust
SSgA International Liquidity Fund
Summit Investment Trust
Variable Insurance Funds
The Victory Portfolios
The Victory Variable Insurance Funds
Vintage Mutual Funds, Inc.

(b) Officers and Directors.

<TABLE>
<CAPTION>
Name and Principal Positions and Position
Business Address Offices with Registrant with Underwriter
- ------------------ ----------------------- ----------------
<S> <C> <C>
BISYS Fund Services, Inc. None Sole General Partner
3435 Stelzer Road
Columbus, Ohio 43219

WC Subsidiary Corporation None Sole Limited Partner
150 Clove Road
Little Falls, New Jersey
</TABLE>

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

(1) SunTrust Equitable Securities, 800 Nashville City Center, Nashville,
Tennessee 37219-1743 (records relating to its functions as investment
adviser).

(2) BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219 (records
relating to its functions as administrator, transfer agent, fund accountant
and distributor).

(3) Dechert, Price & Rhoads, 1775 Eye Street NW, Washington, DC 20006-2401
(Registrant's Agreement and Declaration of Trust, and Code of Regulations).

ITEM 29. MANAGEMENT SERVICES

Not applicable.

ITEM 30. UNDERTAKINGS

(a) Not applicable.

(b) The Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the Registrant's latest annual report to shareholders
upon request and without charge.

3
<PAGE> 106
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, Registrant has duly caused this
Post-Effective Amendment No. 12 to Registrant's Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized, in the City
of Columbus, Ohio on the 26th day of May, 1999.

ESC STRATEGIC FUNDS, INC.

By: /s/ R. Jeffrey Young
---------------------------

R. Jeffrey Young
---------------------------
President

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 12 to Registrant's Registration Statement has
been signed by the following persons in the capacities indicated on the date
indicated.

SIGNATURE TITLE
- --------- -----

By: /s/ R. Jeffrey Young
- ------------------------
R. Jeffrey Young President

By: /s/ Martin R. Dean
- ------------------------
Martin R. Dean Treasurer

/s/ *
- -----------------------
William H. Cammack, Jr. Director

/s/ *
- -----------------------
J. Bransford Wallace Director

/s/ *
- -----------------------
Brownlee O. Currey, Jr. Director

/s/ *
- -----------------------
E. Townes Duncan Director

*By: /s/ Jeffrey L. Steele
- --------------------------
Jeffrey L. Steele
Attorney-in-Fact